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Transcript of 2016 - SME Bank | Small Businesssmebank.org/wp-content/uploads/2017/08/SME Annual Report 2016... ·...
Annual ReportAnnual Report20162016
Annual Report20162016
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Contents
1. Corporate Information 22. Vision & Mission Statement 33. President’s Message 54. Financial & Operational Highlights 75. Directors’ Report-English 86. Directors’ Report-Urdu 27 7. Shareholding Pattern 288. Statement of Compliance 299. Statement on Internal Controls 3410. Auditors’ Review Report to the Members 35
11. SME Bank Limited - Unconsolidated Financial Statementsa. Auditors’ Report to the Members 39b. Statement of Financial Position 41c. Profit and Loss Account 42d. Statement of Comprehensive Income 43e. Cash Flow Statement 44f. Statement of Changes in Equity 45g. Notes to the Financial Statements 46h. Notice of 15th Annual General Meeting 105
12. Consolidated Financial Statements a. Auditors’ Report to the Members 109b. Statement of Financial Position 111c. Profit and Loss Account 112d. Statement of Comprehensive Income 113e. Cash Flow Statement 114f. Statement of Changes in Equity 115g. Notes to the Financial Statements 116
13. SME Leasing Limiteda. Auditors’ Review Report to Members 185b. Auditors’ Report to the Members 186c. Balance Sheet 188d. Profit and Loss Account 189e. Statement of Comprehensive Income 190f. Cash Flow Statement 191g. Statement of Changes in Equity 192h. Notes to the Financial Statements 193
14. List of addresses of Head Office, SME Branches, Recovery Offices, Treasury, Audit Offices and SME Leasing Ltd 23315. Form of Proxy 238
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Cor porate Infor mation
Board of Directors1. Mr. Muhammad Adnan Jalil2. Mr. Zarar Haider3. Mr. Badr-ul-Arifeen4. Mr. Ihsan ul Haq Khan5. Vacant6. Vacant7. Vacant
President and Chief Executive OfficerMr. Ihsan-ul-Haq Khan
Company SecretarySajjad Ahmad Warraich
Chief Financial OfficerFarrukh Mansoor Malik
Legal AdvisorsBhatti Law AssociatesIslamabad
Registered Office56-F, Nazim-ud-Din Road,F-6/1, Blue Area,IslamabadTel.: 051-9217000Fax: 051-9217001UAN: 111- 11 0-0 11Email: [email protected]: www.smebank.org
AuditorsM/s Grant Thornton Anjum Rahman302-B, 3rd Floor, Evacuee Trust ComplexAgha Khan Road, F-5/1, IslamabadPh# 92 51 2271906, 2274665 Fax 2273874
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Vision Statement
We will be the leading institution for providing financial assistance for the development and support of Small and Medium Enterprises (SMEs) in Pakistan.
We will respond to the needs of Small and Medium Enterprises by providing them with necessary financial assistance and business support services in the form of short to long term funds.
Will, through support of SME sector, contribute to the growth of local entrepreneurs, develop export markets and provide employment opportunities in the country.
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Mission Statement
To support and develop SME sector by providing necessary financial and technical assistance on a sustainable basis.
To enable SME sector to contribute to economic development through value addition and exports, promote entrepreneurship and create employment opportunities.
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President ’s Message
It is my pleasure to present the 15th Annual Report of SME Bank for the year ended December 31, 2016.
The economic activity seems slightly vibrant while growth in energy sector remains contained, and the SME sector bore the brunt of the energy crisis due to lack of access to alternate energy. In the coming year, China-Pakistan Economic Corridor (CPEC) is one of the biggest and most significant projects for Pakistan and the region. As per this agreement, both Pakistan and China will allow banks to open branches in each other’s country. With the opening of Pakistani banks in China, the remittances / LCs which are presently routed though European banks, shall be done through Pakistan’s own banks.
On the other hand, the opening of Chinese banks would facilitate Pakistani Financial sector to link with world largest economy, this would also ease Chinese investments for the Economic Corridor through Pakistani banks. There will be urgent need for reforms in different sectors so that they are ready for taking advantage of economic corridor and facilitate in boosting investment in different corporate sectors of economy in Pakistan. In this context the small and medium sector will also grow and the SME Bank will take part in financing these sectors.
SME Bank has continued to work with a limited equity base, bank is operating with paid-up capital of Rs 2.39 billion since 2007 and State Bank has granted exemption to meet the requirement of minimum paid-up capital which otherwise should have been Rs 10 billion by the end of June 2017. In the shareholders’ meeting on October 7, 2009, it was advised that the Bank be recapitalized by increasing paid-up capital; management has approached Ministry of Finance for the same over the years.
With a network of 13 branches the Bank has very limited outreach. The Bank’s Directors have authorised the opening of additional branches, however in-principle approval from the State Bank is not forthcoming due to pending privatization.
Even under constrained circumstances there is no let up in the Bank’s primary operations, albeit at a slower than desired pace for reasons stated. In these circumstances we have been able to make disbursements of Rs 1,956 million during the year as compared to Rs 1,994 million in the previous year and deposits which has been increased by Rs. 459 million and stood at Rs 5,229 million as on December 31,2016 as compared to last year Rs. 4,770 million.
As business & economic activities remained depressed, repayment commitments were dishonoured by many borrowers, however due to the management’s focus and strenuous efforts by the field staff, non-performing portfolio decreased to Rs. 514 million at the year-end December 31,2016 from Rs.611 million last year. Management has been able to reduce net loss by Rs. 83 million from Rs. 282 million in previous year to Rs 199 million during the year.
We are hopeful that the process of restructuring or privatization will complete soon and this will cause further expansion in business and enhance operations to the advantage of all stakeholders.
It is the Management’s vision to build an image of SME Bank as the bank which is a friend of the Small & Medium Enterprises; a bank totally trusted with their deposits, ability and resources to cater to their
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business needs. Customers’ will see SME Bank as the bedrock integral to their business growth and sustainability and as a national institution ably playing its crucial role in the country’s economic growth & development.
On behalf of the management, I would like to take this opportunity to thank the State Bank of Pakistan, the Ministry of Finance and the Board of Directors for their continued support and guidance.
Ihsan ul Haq KhanPresident & CEO
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Financial Highlightsfor the year 2016FINANCIAL HIGHLIGHTSfor the Year 2016
2016 2015 2014 2013 2012 2011PROFITABILITY
Income
Total Income 662.3 753.2 876.3 741.1 808.6 714.5 Interest Income 615.1 705.3 788.8 715.2 790.3 693.8
Expenses
Total Expenses 1,119.2 1,027.8 1,254.6 1,167.3 1,184.5 979.2 Interest Expenses 441.2 436.3 542.6 477.9 534.0 421.4 Spread (Net interest income / Gross interest income) 0.3 0.4 0.3 0.3 0.3 0.4 Loss before tax (456.8) (274.6) (378.3) (426.2) (375.9) (264.6) Loss after tax (199.2) (282.2) (387.1) (430.7) (384.5) (272.5)
FINANCIAL POSITION
Shareholder's Funds 2,392.5 2,392.5 2,392.5 2,392.5 2,392.5 2,392.5 Net Equity 20.6 356.3 689.4 1,004.1 1,344.7 1,866.3
Liabilities
Total Liabilities 9,357.6 8,260.2 4,611.0 6,019.7 7,623.4 5,331.4 Borrowing from financial institutions 3,460.3 2,888.7 776.2 1,749.0 3,566.6 2,125.4 Deposits 5,228.7 4,770.2 3,343.1 3,713.1 3,328.0 2,647.2
Assets
Total Assets 9,378.2 8,616.5 5,300.4 7,023.8 8,968.1 7,197.7 Advances (net of provisions) 2,771.7 2,751.7 2,928.7 2,852.4 2,855.0 2,718.9 Investment 4,869.5 4,117.5 1,446.5 2,653.4 4,662.7 3,929.3
RATIOS
Return on Assets -2.21% -4.05% -6.28% -5.39% -4.76% -4.12%Return on Equity -105.71% -53.97% -45.71% -36.67% -23.95% -13.97%Capital Adequacy Ratio (Required 12%) -2.75% 6.79% 21.17% 30.37% 34.92% 62.85%Earning/(Loss) per share (0.83) (1.18) (1.62) (1.80) (1.61) (1.14)
BUSINESS ACHIEVEMENTS
Recoveries of New portfolio 659.8 767.7 724.0 707.0 582.8 596.3 Advances disbursed during the Year 1,956.2 1,993.6 1,835.6 1,659.0 1,968.0 1,728.7 Number of SMEs Finances 481.0 447.0 552.0 579.0 652.0 587.0
OTHER INFORMATION
Number of Employees 490 495 462 477 491 482 Number of Banking branches 13 13 13 13 13 13 Total Branches/Recovery Offices 18 21 21 22 22 22
Rs. In million
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Directors ’ Repor t to the Shareholders
We are pleased to present the 15th annual report of SME Bank Limited with the audited accounts and auditors’ report thereon for the year ended December 31, 2016.
Economic Review The onset of 2017 has mainly seen positive vibes coming out of the Pakistan Economy. This has not happened overnight and has been the effect of structural reforms and prudent monetary and fiscal policies. Growth accelerated in Pakistan in Fiscal Year 2016 due to these policies, sharply lower oil prices, and improved security, outpacing earlier growth forecast despite a major crop failure. Inflation and the current account deficit were lower than expected, while foreign exchange reserves strengthened and the budget deficit shrank. During the period under review (CY16), due to further abatement in inflationary pressures (average inflation of 3.76%), State Bank of Pakistan (SBP) reduced the policy rate by a cumulative 25 bps in CY 16 followed by a 300 bps reduction in CY15. SBP in its policy statement highlighted:
(i) improvement in the macroeconomic conditions; (ii) better law and order situation; and (iii) Positive growth prospects underpinned by investment under China Pakistan Economic
Corridor (CPEC).
Supportive provisions from the International Monetary Fund, the World Bank and the Asian Development Bank also assisted the foreign exchange reserves to reach an all-time high of USD 23 billion, providing an effective import cover of 5 months and stability to the local currency.
Worsening liquidity situation and banks’ insatiable appetite for risk free securities crowded out private sector and advances only posted a meagre growth of 5.1% in CY16.
Banks are facing challenges in keeping the balance between profitability and liquidity management as the market is short by an average of Rs 850 billion, which is injected by the SBP through OMOs on a weekly basis. As far as the interest rate scenario is concerned, we do not see the reversal in the monetary policy in the short to medium term. With a plethora of positive developments at the macro level engineered by the current finance team, the Government has enough space to bolster the economy through easy monetary policy.
Operational HighlightsThe Bank is operating with paid capital of Rs 2.39 billion since 2007. State Bank has granted exemption to meet the requirement of minimum paid up capital of Rs 10 billion by June 30, 2017. Shareholders in their meeting on October 7, 2009, advised to recapitalize the bank by increasing its paid-up capital and management has approached Ministry of Finance for the same. The Board noted that in view of impending privatization of the Bank, SBP’s constraints on business expansion, and very narrow equity base of less than Rs 2 billion, it is a challenge to operate the bank on self sustainable basis.
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In view of restrictions placed by State Bank of Pakistan there was no change in branch network during the year 2016 and the Bank continued to operate with 13 commercial banking branches and five recovery offices.
Interest Rate ScenarioSBP discount rate at the beginning of the year 2016 was 6.50 percent. During the year the net decrease in discount rate was 0.25 percent to bring the discount rate to 6.25 percent at year end. The change in discount rate also affects KIBOR for different tenors and income of the bank as compared to previous year.
Credit RatingBank was assigned a long term as well as short term credit rating of B (Single B) by PACRA credit rating agency on April 14, 2016. The credit rating company has expressed that growth in the bank’s operations is restricted due to delay in injection of additional equity into the bank; that although the management is taking measures to improve business functions, operational sustainability is dependent upon equity injection by the primary sponsor.
Operational Results In the backdrop of narrow equity base and shortage of funds, management has been able to meet day to day liquidity needs and maintenance of statutory liquidity requirements (SLR) set by the State Bank of Pakistan. Despite enormous pressure of liquidity crunch, loans and advances portfolio stood at Rs 2,996 million. During the year under review income from SME lending operations decreased by an amount of Rs 111.305 million. The cost of deposits and borrowing increased by an amount of Rs 4.924 million. The average cost of deposits decreased to 5.94% as compared to 7.13% in 2015.
The bank has booked before tax loss of Rs 457 million during the year 2016 as compared to before tax loss of Rs 275 million in 2015, and Net loss of Rs 199 million as compared to Net loss of Rs 282 million in 2015. The reason for incurring losses were due to pending privatization, restructuring, limited outreach, inadequate level of equity and economic condition. In future, we expect to decrease the losses by enhancing revenues and reducing volume of our Non-performing loans.
During the year 2016, the bank reversed net provision of Rs 2.102 million against non-performing loans as against reversal of provision of Rs 63 million in 2015. Loans and advances on account of the bank’s lending operation were Rs 2,995 million in 2016 to Rs 2,990 million in 2015.
The ongoing energy crises seriously dampened the business activities in the country to a great extent, which in turn affected the repayment capacity and behaviour of the bank’s borrowers but despite these hindrances the management of the bank made persistent efforts to reduce the non-performing loans of the bank resulting in decrease from Rs 611 million on December 31, 2015 to Rs 514 million on December 31, 2016.
The deposits of the bank has been increased by Rs. 459 million and stand at Rs 5,229 million as on December 31,2016 as compared to last year Rs. 4,770 million as on December 31,2015. Bank has investment of Rs. 215.46 million in SME Leasing Limited (SMEL) which is carried in these financial statements at Rs. 128,495 million and has outstanding running finance exposure of Rs. 126,580 million at the balance sheet date. The company during the year has mainly focused on
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internal cash generation through recoveries of non-performing loans and investing them to build-in the fresh healthy portfolio. The company has managed to disburse Rs. 98 million against fresh leases out of its recoveries totalling to Rs. 145 million and also managed to finance its operating expenses to some extent. Market value of its share has witnessed some inclination and stood at Rs 3.69 per share as on December 31, 2016. The Bank periodically reviews its investment in SMEL for evidence of any impairment. The recoverable amount of investment in SMEL is determined with reference to its value in use. The Bank uses present value techniques and financial projections of SMEL to calculate its value in use.
With regard to the exposure granted to SME Leasing Limited, SME Bank applied for exemption on per party exposure to SBP in 2015. SBP has granted relaxation to SME Bank Limited in single related party exposure limit under Prudential Regulation R-1 regarding the financing of Rs 150 million to SME Leasing Ltd for the period up to June 30, 2017, subject to the condition that exposure to related party be adjusted within the prescribed limit and a plan to this effect is required to be submitted to SBP, which was accordingly submitted. Pursuant to provisions of the Act the Bank’s trading rights in LSE and ISE have lapsed on August 26, 2014. In view of above the SBP required the Bank to classify these rights under sub-standard category due to remote chances of their recovery that resulted into recognition of provision in the March 2015 of Rs 5.39 million representing 25% of gross carrying values of these rights. The management of the Bank in collaboration with other financial institutions affected by the same cause is pursuing the concerned authorities for the reinstatement of these rights.
Paid-up CapitalThe Bank is operating with paid up capital of Rs 2.39 billion since 2007. In line with the SBP guidelines banks are required to raise paid up capital to minimum capital requirements of Rs 10 billion by December 31, 2016. However the State Bank of Pakistan has granted exemption to meet the requirements of minimum paid up capital till June 30, 2017.
Financial StatementsFinancial statements have been prepared in accordance with International Accounting Standards as applicable in Pakistan, SBP Prudential Regulations and Companies Ordinance 1984. The disclosures in notes to financial statements correspond to the requirement of law and guidelines issued by the regulatory authorities.
Internal Control over financial reportingThe board is fully committed to ensure the existence of an effective system of internal control in the bank and continuously reviews and evaluates the adequacy and integrity of those systems. However, the board recognizes that such systems are designed to manage rather than eliminate the risks identified to acceptable levels. Therefore, the systems implemented can provide only reasonable and not absolute assurance against the occurrence of any material misstatement and loss.
Whilst the Board has overall responsibility for the bank’s system of internal controls, it has delegated the implementation of these internal control systems to the management in order to identify risk and take action to mitigate the risk. These internal control systems are subject to the board’s regular review with a view towards appraising the effectiveness of these systems in the bank.
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DepositsDespite all the impediments, the deposit portfolio of the Bank was increased to Rs. 5,229 million as on December 31, 2016.
Disbursements Liquidity constraints notwithstanding, the bank was able to achieve disbursement of Rs 1,956 million during the year as compared to Rs 1,994 million in the previous year. The number of clients served during the year was 481 and total number of outstanding borrowers stood at 1,571 at the year end.
Leasing Business SME Leasing Limited, a subsidiary of the Bank incorporated in 2002, has posted a loss before tax of Rs 13.056 million as compared to loss of Rs 22.180 million from last year. Net equity of the company is 157 million (2015: Rs 173 million). PACRA has, subsequent to year end, assigned the initial long term entity rating to B+ (B positive) and short term to B with stable outlook. Bank provides financing facility to SME leasing on mark-up basis as and when required.
SME Leasing disbursed Rs 98.36 million (2015: Rs 45.79 million) to 15 clients (2015: 11). Outstanding lease portfolio stands at Rs 406 million with 227 clients.
Customer Complaint ManagementThe management believes in customer’s delight through better service delivery from all aspects and thus endeavour to promote a culture that values customer’s relationship and experience. For this, an effective management of customer complaints and queries is considered an important element and is, therefore, allocated high priority for redressal of complaints promptly and fairly. A dedicated Vigilance Department is functioning to ensure timely resolution of complaints in order to foster customer confidence. It also coordinates with other functional divisions for improvement in SOPs and mechanism for facilitating the customers at SME bank.
A comprehensive Complaint Resolution Mechanism has been designed and is in place since May 5, 2016. It provides more than one channels to the clients for lodging their complaints to the bank. It outlines detail guidelines for receipt, recording, probing, resolving and responding to the complainants. Consequently an assessment survey has also reflected the satisfaction over the conduct with the banks’ customers.
Training & HR DevelopmentFor enhancement of skill/knowledge base of human capital available for specialised tasks, necessary training and skill development activities were carried out for the staff on the basis of training need assessment.
Information TechnologySME Bank’s Management fully understands the changing role of Information Technology from a back office function to prime assistant in increasing the value of the bank. They have invested in IT infrastructure to launch new services for the clients. Now SME Bank’s clients can enjoy the facility of Inter Bank Fund Transfer through SME Bank‘s branches. Clients can view the Urdu version of SME Bank’s website for easy understanding. Biometric verification of clients, from NADRA’s citizen database, can be done online to expedite the clients’ verification process.
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Communication infrastructure has also been upgraded to ensure 24x7 availability of ATM & POS, SMS and other Banking Services. Procurement of next generation security devices and development of comprehensive policies has been done to ensure clients’ privacy & confidentiality and to protect the clients/bank from cybercrimes.
New technologies are being evaluated to launch products that promote anywhere and anytime banking.
Basel II & III In 2012, State Bank of Pakistan advised all banks to submit their information for Quantitative Impact Study (QIS) – Basel III. SME Bank has applied for exemption from submission of this statement on the basis of already granted exemption from Basel II; Now State bank has granted exemption to the Bank from implementation of Basel II & III till its Restructuring/Privatization due to large investment required in software, human resource, training, etc.
Capital Adequacy ReturnBank is required to maintain CAR ratio at 10%. During the year ended on December 31, 2016 the CAR of the bank has reduced from prescribed limit. Bank has applied for exemption from maintaining the CAR below benchmark. SBP has granted the exemption in meeting the minimum CAR requirements till June 30, 2017.
Income TaxesTax Department served notices regarding Income Tax pertaining to tax years 2003, 2004, 2005, 2008, 2010, 2012 and 2014. Bank has filed appeals with Appellate Tribunal for the Tax years 2008 & 2010 among which tax demand for the Tax Year 2008 is in process for adjustment and settlement against tax years 2007 and 2009. Whereas for the tax years 2003 and 2004 Tax Department has filed reference in The Islamabad High Court against the decisions of the Appellate Tribunal & for the tax year 2005 tax department has filed an appeal with Appellate Tribunal against the decision. For the tax year 2012 appeal filed by the bank with the Commissioner (Appeals) who remanded the case back to DCIR. Tax Year 2014 is assessed u/s 122(1) / 122(5) of the ITO, 2001. Tax Year 2016 is also deemed to have been assessed u/s 120 of the ITO, 2001. Tax Department also served notices regarding FED/sales tax pertaining to tax years 2008, 2009, 2010 and 2011-2012. Bank replied these notices and contested the cases. Tax year 2008 and 2010 have been remanded back for fresh consideration of the cases meanwhile the bank has filed appeals with the Appellate Tribunal Inland Revenue against rest of the cases.
Risk Management FrameworkTo comply with SBP guidelines on Risk Management during the year 2016 risk function of the Bank was made more robust.
Whilst the State Bank has exempted the Bank from implementation of Basel-II till its privatization lending decisions are subjected to extensive and diligent credit risk evaluation and assessment process. Obligor, facility and guarantor internal credit risk rating system is in place and regular part of credit processing. Keeping in view the nature of SME lending, quick turn around time and efficiency, credit risk officers have been placed at branch level where ever feasible. Above a certain limit fixed, proposals are being reviewed at Head Office. Compliance with the State Bank’s regulations, policies and Bank’s own credit policies are ensured through risk review function.
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The management endeavours that bank’s operation and credit activities conform to the prudential regulations and SBP instructions are strictly followed and efforts are consistently made to incorporate good business practices in fulfilling the risk function.
Privatization of BankThe Bank is on agenda of privatization by Privatization Commission (PC) since 2006. The process of privatization initiated in the year 2007.Financial Adviser was appointed by Privatization Commission in March 2007 who processed the transaction. Expression of interest was solicited in 2008. Received 18 Expression of Interests from the interested investors. Shortlisted firms/companies were in process of due diligence, when State Bank of Pakistan raised minimum Paid up Capital requirements for all locally incorporated banks to Rs. 23 billion (net of losses). The decision of the SBP adversely affected feasibility of the transaction. The interested investor could not keep remain their interest in the transaction resultantly the transaction was suspended by the Government of Pakistan.
Privatization of SME Bank reactivated in 2015 by the Privatization Commission. Financial Adviser for privatization of the bank has been appointed. Agreements are being executed with the appointed Financial Adviser.
Board of DirectorsBoard of Directors consists of seven directors nominated by the Federal Government; however, three positions two independent directors and one non-executive director remained vacant during the year. Board meets frequently and ensures to meet at least every quarter.
Board held five meetings during 2016; attendance of which is given hereunder:
Directors Meetings AttendedMr. Muhammad Adnan Jalil 5
Mr. Zarar Haider 5
Mr. Muhammad Alamgir Chaudhry (retired) 1
Mr. Ihsan ul Haq Khan 5
Mr. Badr-ul-Arifeen 5 Board has constituted six sub-committees namely Audit Committee, Risk Management Committee, Human Resource Committee, Nomination Committee, Procurement Committee and Remuneration Committee.
Audit CommitteeThis committee consists of three non-executive directors and has been formed to assist the Board in fulfilling its statutory and fiduciary responsibilities. This committee is advisory in nature and does not perform any management function. It assists the Board in discharging its responsibilities and in complying with good governance. During the year 2016, four meetings of Board Audit Committee were held. Attendance in these meetings was as follows:
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Directors Meetings AttendedMr. Muhammad Adnan Jalil 4
Mr. Badr-ul-Arifeen 4
Mr. Zarar Haider 4
Risk Management Committee This Committee consists of three non-executive directors and it assists the Board in measurement and mitigation of different risks. During the year 2016, four meetings of Board Risk Management Committee were held. Attendance in these meetings was as follows:
Directors Meetings AttendedMr. Muhammad Adnan Jalil 4
Mr. Muhammad Alamgir Chaudhry (retired) 1
Mr. Badr-ul-Arifeen 4
Mr. Zarar Haider 2
Human Resource CommitteeBoard Human Resource Committee comprising three directors has been formed to assist the Board in all staff related matters, policies and benefits including compensation. During the year 2016, five meetings of Board Human Resource Committee were held. Attendance in these meetings was as follows:
Directors Meetings AttendedMr. Muhammad Adnan Jalil 5
Mr. Badr-ul-Arifeen 5
Mr. Ihsan ul Haq Khan 5
Procurement CommitteeBoard procurement Committee comprising three directors has been formed to prepare, review and recommend to the Board, procurement related policies to ensure transparency in procurement transactions and in dealing with suppliers. During the year 2016, no meeting of Board Procurement Committee was held. Nomination CommitteeThis Committee consists of two non-executive directors and it assists the Board in identification and recommendation of independent directors on the Board. It meets on need basis. No meeting was held of Board nomination Committee during the year 2016.
Board Remuneration CommitteeThis Committee consisting of two non-executive directors was formed as per instructions of SBP received vide BPRD circular # 2 of 2016 to assist the Board in development of the structure of compensation package of Executive Directors, CEO, Key Executives and any other employee or group
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of employees and subsequent improvements therein to encourage the culture of ‘pay for performance’. However, implementation on the circular was later deferred for review of instructions which was not done till year end. No meeting was therefore held of Board Remuneration Committee during the year 2016.
Corporate Governance and Financial Reporting FrameworkSME Bank is committed to observe good corporate governance and has adopted the recently promulgated governance framework for public sector companies. The Directors have ensured that adequate arrangements are made to meet the financial recording and reporting parameters and are pleased to state that:
• proper books of accounts as required by Companies Ordinance have been maintained;
• applicable international financial reporting standards have been followed in preparation of annual accounts;
• the accounts have been prepared on going concern basis and the Bank has adopted prudent accounting policies and used sound accounting estimates;
• Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates. Any departure has been adequately disclosed and explained;
• the financial statements prepared by the management of the Bank present fairly, state of affairs of the Bank as at December 31, 2016, the results of its operations for the period then ended, cash flow and changes in equity;
• the appointment of chairman and other members of board and the terms of their appointment along with the fee/remuneration adopted are in the best interests of the Bank as well as in line with the best practices.
• appropriate systems of internal control have been put in place for managing significant risks, with adequate arrangements for its effective implementation, continuous review and monitoring;
• the Board of Directors is satisfied with Bank’s ability to continue as a going concern;
• there are no outstanding statutory payments on account of taxes, duties and levies as on December 31, 2016, except as disclosed in the financial statements;
• the value of investments held for staff funds is reflected in note 34 of notes to the accounts;
• Bank has complied with the provisions of Public Sector Companies (Corporate Governance) Rules, 2013 and there has been no material departure from the best practices of corporate Governance.
• Key Operating and financial data of last six years is available in annual Reports.
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Shareholding PatternThe statement showing pattern of shareholding as at December 31, 2016, as required under Code of Corporate Governance is annexed.
Loss per shareThe basic and diluted after tax loss per share for the year 2016 is Rs. (0.83). (2015: Rs. (1.18)
AuditorsThe present auditors, M/s Grant Thornton Anjum Rehman, Chartered Accountants, have completed their assignment for the year ended December 31, 2016 and shall retire at the conclusion of 15th Annual General Meeting. Being eligible, they have offered themselves for reappointment. As advised by Board Audit Committee, board recommends appointment of M/s Grant Thornton Anjum Rehman as auditors for the year 2017.
AppreciationWhile the Board appreciates the efforts of the management and staff trying to steer the Bank out of the current situation, it also highlights the need of more efforts for improving the recovery drive and for enhancing disbursements. The Board would also like to thank State Bank of Pakistan and other regulatory authorities for their continued support and guidance and the shareholders for the trust and confidence reposed in us.
Zarar HaiderChairman
(Of the meeting)
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اور �� � وا�� � رو� � �ا ا� �ا � اور ا� و� � ادا�� � �ان � و� � � � �رو�ری ���� � ��د� �ا�� �
� �� � � � �� � � �� �� � ادا �� وا� ا�� � � � � �� ان ر�و�� � ��د � ا� � ا� �ا � � رو� � 459� � ���� � ۔�� � رو� � 514� 2016د� 31� رو� � 611� 2015د� 31� � �
� 5,229 �� � � � 2016د� 31� رو�� �� � 4,770� ����� 2015د� 31�� �� ا�� �ا � اور ۔ر�رو�
� رو� � ��� �ری � � � � ا�را� ان ��� ��� � � 215.46� � ا� ا� ای �� � �ا� ا� ای ا�� � �
� رو� �� � � �۔ �� � دوران � � 126.580 � � وا� ا�دا ر� �� � � رو� � � � اور � 128.495ا� �� ��� � � �� � �ن �ر� ��اور � اور ا� � ا� � � و�� � �ر� ر� �� �� �� وا�� �� ادا �� �� �
� �� � � �و� �۔ ا�ا�� � �ری اور � رو� � ادا� � 98� �� � � �� � � رو� 145 � � ا� � ر�۔ اور �� �� � �ر� و� � � � و� ����رو� ر� ۔� �ن 3.69� � � 2016د� 31� � ��� �� �
ا� ا� ای ا� � �� و�� ��� �ری � ر� � � ا� � و�� �� � � � ۔ ��� ا� ا� ای ا� � ا� ��� �ری � و� �� ا�� �� �ی� �� اور ا� ا� ای ا� �� � ��د� و� ا� ا� ای ا� � � و� � �� �� � � � �۔ �� �
� �ر� ا�� � � ا� � �� ��ن � 2015ا� ا� ای � � �� � � ، � د� � ا� ا� ای �� �۔�� � - �� � در�ا� � ��� �
� 150� 2017�� � � �ن ای ا� ا� ا� � �� ��ن � ا� ا� ای � �
���� � � �و�������� رو� � ���
�ر� ا��� � � R-1ر�� �������� ��� � � ا�ر � � � �� دی �ر� ا� �� � � ر� ��� ا�� � ا������ � �۔دی �� و� � � ، � �� �� � �ا� � � � �� ��ن � ااور �� �
ا� ا� ای اور �� ا� ای � ا� � � 26��� را� � � �� او� �ن �� ��� � � � � 2014ا� � � �۔
���ی � �� و� � � ا�ن � �� ر� �� � � �� ��ن � � � و�� �� � در� �ی ��� را� ان � �ر ��� � ر� �۔�و�ن � � رو� 5.39� �ا� و� %25� ��� را� � ان 2015� � � � �ر� �� � �ا� �
� ر� �۔را� � �� � ان �� � دو�ر� �� � � �ون �� ا� � � �� �� � ، ،ا�� د� ��� ادارو�
26
اوت ا�� � ا� � � و�ات �� � تا� � ۔ �ت� � � � ا� � ا� ���������� � ا�� ٹ� �� ��� � ��� ٹ� 2� اوت � �ود ����� تو�ت � �� ��� � �� ��� ا� ��� �� و� � � �ا���� �� � � �
ا� � � ۔� � � ت� �� � � � �د � �تا د� �� � � � ا�� تو� �
13ا� � � وت� � �� �� � � اوت � � دوتا� � 2016ا� � �� ��� �� � ���� تو� � �ل � � � اوت �� ت�ت� ��� �
� ۔�� ت��� � �ا�
:رت �ل ح �د � ت� �ل
�� ت� � 6.50 %� حو� �2016ا� � �� ��� � ���
� � �� 0.25 %�۔ ا� �ل � دوتا� ���
� ت� ���
� ت� � ا� �� � � � � 6.25 %� �ل � �� � ����
� اوت ا� KIBOR � �� ��۔ ��� ۔� �� � �� � �� �ل � � ��� �
:ٹ � ت� ٹ � ت� ا� � �ت� ��د �� � �� 2016ا�� 14�ٹا �� �۔ ) B)� B اوت � �� ٹ � ت�ا���� � �ا�� ا�� ٹ � ت� � � � �� � � �تو�ت� ا�� � ا�� � � � �ود ���� � ��� � � و� �
� ا�� � � � � � ۔�� � ��ات� ��� � �� � ا�ا� ٹ ت� ��� ���ت�ات�
��� ��: � تو�ا� ��� �وتا�� ا� � �� ��� �� � �وت� �ات د� � �و�د �د اوت �� � � ا�� �ود
ا� �ت) �وت� � ��ات ت� � �� ت� �۔ ��� ��� (ا��ت� ٹ� اوت
� ��� �۔ �� � �ل � دوتا� ا� ا� ا� ت�� تو� 2,996� � �و�د �� � اوت ا وا� � � �� �ا� ��� � � ا�� �ا ۔ � تو� 4.924� �� � �� � � تو� � �� � ا� � �و� ���� اوت111.305� ��� �
۔ت� 5.94 %� �� � 7.13 %� 2015 ��او� ����
� تو� � 457� ا� � �ت� � دوتا� 2016� تو� � �� � �ل 275� � ا� � �ت� � 2015�ل � � ا � � 2015وت �ت� � �282 � �� � تو� �2016 � � 199�ت� تو� � ت�۔ �� و� �تو� �ت ا�
� ادا �� وا� ��� � � � � ��� � ا�� اوت � ��� ا�� اوت ا�د� �� �۔ �ا��ود � � ��ا���� � �� � �� �� � تو� 63� � � �� ��� � 2015 ۔� �� ٹ� �� �تو� � � � �ت� �
27
رد�رز ر�ر� د� � ��رزدور �ر�ز � ر�ر� ��در� � � �� ود� �ل � �ر� �ہ 2016 � 31و� ��� ر�ر� � 15 د� د� د� � � �
۔� �� �� �� د� �� د
:دی � ��ہ� � � � �� �د � � رد�� ردت � � � �� �۔ � ی � �� ا � د� �و� �� ا �� ��� � د 2017�ل
� � �� � �� � �، د� ����� �� � � 2016��� � �۔ ��� � ��� �ل �� ��� ��� � دور د��ت ��ر� �� ��� ��� � � د� ۔ د�د� زر دورا د�دت � �� ��۔ ��، � � �� �د � � � ا �و� �� ، ��
��رہ د �
� ؤ) ا ورد� د�د� زر ا �2016ز� � �ت (د�� �� دور � ا �رہ � �� �� �۔ د� ا ر�رو� �� � � ر� ، �ر� � � � � � �� ر� bps 25� �� 2016��� � �ل ) د� � �� 3.76 %� � و� � (د�د� زر ��
: �� ��� � �ت � � � � �� �۔ د� � �� ��� � د� �� �� � ر� �� bps 300 � 2015�دز� �ل �ود�� � �� )١ د� و �� � � �ر�ل )٢ ا � ��� ر� � � د�� (CPEC) �� ��� دی � رد�در� )٣
دور �� د� � �� �ہ � � ر��دت � �� د� ��ور� � دور د� رو� � � � ، د�� ��� � ا �و� �� � � � ۔� د�� رد� � 23� ر�رود�� � �� � � زر� �
��ر� ا � � � �د� � و� � �دت � �� دور � �� رو�ر ا �� �� � ��� �د�� � دور د�ود� ا � �� ��
�� د�� �د۔ 5.1 % � �� 2016ل � �
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�� � دور ر�� �ت ا � � � � �� � د�� ر� ا � �� �� ��� � ، �� �� ��� �� � � د���� ۔� �� �ا � � ��و� � �و �ل � �� ا �� ��� ��� �� ا �ر� دی � �� �� �� �
:ا د �ت ر د � ا 2.39� � 2007� �ل � د� � 2017��� 30 � در� �۔ د� � � د� � � � � د� �������� � رو�
� � � �رہ � � � 2009د� 7�ر� ز � � �� ۔ � د�ا � � �رد د� � رو� � �ورت 10���������� � � دز �
28
Shareholding Patter n
The pattern of shareholiding as at December 31, 2016 is given below ;
Sr. # Categories of Shareholders No. of Share-
holderShares held %
123
Federal GovernmentBanksIndividuals
167
224,615,97814,634,715
7
93.886.12
-Total 14 239,250,700 100
Government of Pakistan is the only shareholder holding 10% or more voting interests. Position of shareholding by each director is as under: Name of Directors No. of Share (s)
1 Mr. Muhammad Adnan Jalil 01
2 Mr. Ihsan ul Haq Khan 01
3 Mr. Muhammad Alamgir Chaudhry 01
4 Mr. Zarar Haider 01
5 Mr. Badr-ul-Arifeen 01
5 Mr. Majyd Aziz Balagamwala (retired since Jan 23, 2013) 01
7 Mr. Zahid Oosman (retired since March 06, 2014) 01
29
Statement of Compliancewith Public Sector Companies (Corporate Governance) Rules, 2013For the year ended December 31 , 2016
SCHEDULE I [See paragraph 2(1)]
I. This statement is being presented to comply with Regulation G-1 of the Prudential Regulations for Corporate/ Commercial Banking issued by the State Bank of Pakistan and the Public Sector Companies (Corporate Governance) Rules, 2013 (hereinafter called “the Rules”) issued for the purpose of establishing a framework of good governance, whereby a public sector company is managed in compliance with the best practices of public sector governance.
II. SME Bank Ltd (the Bank) has complied with the provisions of the Rules in the following manner:
Sr. No. Provision of the Rules Rule
No.Y N Remarks
Tick the relevant box1. The independent directors meet the criteria of independence,
as defined under the Rules.2(d)
2. The Board has the requisite percentage of independent directors. At present the board includes:
Category Names Date of ap-pointment
Independent Directors
Mr. Muhammad Adnan Jalil 23-07-2012
Executive Directors Mr. Ihsan ul Haq Khan 27-05-2014
Non-Execu-tive Directors
Mr. Zarar Haider
Mr. Badr-ul-Arifeen
16-07-2013
27-10-2015
3(2) Government of Pakistan has not nominated directors as a result of which two seats of independent directors and one seat of non-executive Director are vacant
3. A casual vacancy occurring on the board was filled up by the directors within ninety days.
3(4) Government of Pakistan (GoP) has not yet nominated the Directors to fill the casual vacancies
4. The directors have confirmed that none of them is serving as a director on more than five public sector companies and listed companies simultaneously, except their subsidiaries.
3(5)
5. The appointing authorities have applied the fit and proper criteria given in the Annexure in making nominations of the persons for election as board members under the provisions of the Ordinance.
3(7) All the nomination on the Board of Directors are made by the GoP
6. The chairman of the board is working separately from the chief executive of the Bank.
4(1) The Bank currently does not have Chairman of the Board of Directors
7. The chairman has been elected from amongst the independent directors.
4(4) The Bank currently does not have Chairman of the Board of Directors
8. The Board has evaluated the candidates for the position of the chief executive on the basis of the fit and proper criteria as well as the guidelines specified by the Commission.
5(2)
30
9. a. The Bank has prepared a “Code of Conduct” and has ensured that appropriate steps have been taken to disseminate it throughout the Bank along with its supporting policies and procedures, including posting the same on the Bank’s website.(www.smebank.org)
b. The Board has set in place adequate systems and controls for the identification and redressal of grievances arising from unethical practices.
5(4)
10. The Board has established a system of sound internal control, to ensure compliance with the fundamental principles of probity and propriety; objectivity, integrity and honesty; and relationship with the stakeholders, in the manner prescribed in the Rules.
5(5)
11. The Board has developed and enforced an appropriate conflict of interest policy to lay down circumstances or considerations when a person may be deemed to have actual or potential conflict of interests, and the procedure for disclosing such interest.
5(5)(b)
(ii)
12. The Board has developed and implemented a policy on anti-corruption to minimize actual or perceived corruption in the Bank.
5(5)(b) (vi)
13. a) The Board has ensured equality of opportunity by establishing open and fair procedures for making appointments and for determining terms and conditions of service.
b) A Committee has been formed to investigating deviations from the Bank’s code of conduct.
5(5)(c)
(ii)
14. The Board has ensured compliance with the law as well as the Bank’s internal rules and procedures relating to public procurement, tender regulations, and purchasing and technical standards, when dealing with suppliers of goods and services.
5(5)(c)
(iii)
15. The board has developed a vision or mission statement, corporate strategy and significant policies of the Bank. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained.
5(6)
16. The board has quantified the outlay of any action in respect of any service delivered or goods sold by the Bank as a public service obligation, and have submitted its request for appropriate compensation to the Government for consideration.
5(8) None
17. a) The board has met at least four times during the year.
b) Written notices of the board meetings, along with agenda and working papers, were circulated at least seven days before the meetings.
c) The minutes of the meetings were appropriately recorded and circulated.
6(1)
6(2)
6(3)
31
18. The board has carried out performance evaluation of its members, including the chairman and the chief executive, on the basis of a process, based on specified criteria, developed by it.
The board has also monitored and assessed the performance of senior management on annual/half-yearly/quarterly basis.
8
19. The board has reviewed and approved the related party transactions placed before it after recommendations of the audit committee. A party wise record of transactions entered into with the related parties during the year has been maintained.
9
20. The board has approved the profit and loss account for, and balance sheet as at the end of, the first, second and third quarter of the year as well as the financial year end, and has placed the annual financial statements on the Bank’s website.
Monthly accounts were also prepared and circulated amongst the board members.
10
21. All the board members underwent an orientation course arranged by the Bank to apprise them of the material developments and information as specified in the Rules.
11
22. a) The board has formed the requisite committees, as specified in the Rules.
b) The committees were provided with written term of reference defining their duties, authority and composition.
c) The minutes of the meetings of the committees were circulated to all the board members.
d) The committees were chaired by the following non-executive directors:
Committee Number of members Name of Chair
Audit Committee 3 Mr. Muhammad Adnan Jalil
Risk Management Committee 3 Mr. Badr-ul-Arifeen
Human Resources Committee 3 Mr. Muhammad Adnan
JalilProcurement Committee 3 No meeting were held
during the yearNomination Committee 2 No meeting were held
during the year
12
However, no meeting of procurement committee was held during the year as required by TOR of committee approved by Board.
23. The Board has approved appointment of Chief Financial Officer, Bank Secretary and Chief Internal Auditor (CIA), with their remuneration and terms and conditions of employment, and as per their prescribed qualifications.
13/
14
32
24. The Bank has adopted International Financial Reporting Standards notified by the Commission under clause (i) of sub-section (3) of section 234 of the Ordinance.
16
25. The directors’ report for this year has been prepared in compliance with the requirements of the Ordinance and the Rules and fully describes the salient matters required to be disclosed.
17
26. The directors, CEO and executives do not hold any interest in the shares of the Bank other than that disclosed in the pattern of shareholding.
18
27. A formal and transparent procedure for fixing the remuneration packages of individual directors has been set in place. The annual report of the Bank contains criteria and details of remuneration of each director.
19
28. The financial statements of the Bank were duly endorsed by the chief executive and chief financial officer, before approval of the board.
20
29. The board has formed an audit committee, with defined and written terms of reference, and having the following mem-bers:
Name of member Category Professional
backgroundMr. Muhammad Adnan Jalil Independent Businessman
Mr. Badr-ul-Arifeen
Non-Executive
Deputy Secretary- Ministry of Finance
Mr. Zarar Haider Non-Executive
Joint Secretary- Ministry of Indus-tries & Production
The chief executive and chairman of the Board are not mem-bers of the audit committee.
21
30. The board has set up an effective internal audit function, which has an audit charter, duly approved by the audit committee, and which worked in accordance with the applicable standards.
22
31. The Bank has appointed its external auditors in line with the requirements envisaged under the Rules.
23
32. The external auditors of the Bank have confirmed that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on Code of Ethics as applicable in Pakistan.
23
(4)
33.
The external auditors have not been appointed to provide non-audit services and the auditors have confirmed that they have observed applicable guidelines issued by IFAC in this regard.
23(5)
34. The Bank has complied with all the corporate and financial reporting requirements of the Rules.
Ihsan ul Haq Khan Zarar Haider CEO Director
33
Explanation for Non-Compliance with Public Sector Companies (Corporate Governance) Rules, 2013For the year ended December 31 , 2016
SCHEDULE II
We confirm that all other material requirements envisaged in the Rules have been complied with except for the following, toward which reasonable progress is being made by the company to seek compliance by the end of next accounting year:
Sr. No.
Rule/sub-rule
no.Reasons for non- compliance Future course of action
1. 3(2) Government of Pakistan has not nominated directors as a result of which two seats of independent directors and one seat of non-executive Director are vacant.
Appointment by Federal Government is awaited
2. 3(4) Government of Pakistan (GoP) has not nominated the Directors to fill the casual vacancies
Appointment by Federal Government is awaited
3. 4(1) & 4(4) Government of Pakistan (GoP) has not nominated Chairman of the Board of Directors
Appointment by Federal Government is awaited
4. 12No meeting of procurement committee were held during the year as required by terms of reference of procurement committee approved by Board
No need was felt to have meeting of the committee during the year as Bank is following PPRA rules for procurement; however, it will now be called soon or TORs will be amended.
Ihsan ul Haq Khan Zarar Haider CEO Director
34
The management of SME Bank recognizes its responsibility to establish and maintain a sound system of internal controls to provide reasonable assurance to achieve the following objectives.
• Efficiency and effectiveness of operations• Compliance with applicable laws and regulations• Reliability of financial reporting
The internal control system encompasses policies and procedures relating to all processes, products and activities of the Bank’s operations. The internal control policies and procedures are being reviewed by an independent internal audit function reporting directly to the Audit Committee of the Board of Director.
In management’s assessment, these systems, policies and procedures provide reasonable assurance as to the integrity and reliability of those controls and reports produced thereon. It recognizes the fact that these system are designed to mitigate and manage, rather than eliminate the risk of failure to achieve business objectives.
The board is fully committed to ensure the existence of an effective system of internal control and risk management and continuously reviews and evaluates the adequacy and integrity of those systems.
Internal Control over Financial Reporting (ICFR) aims to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the applicable financial reporting standards. We have endeavored to follow the guidelines issued by State Bank of Pakistan on Internal Control.
State Bank of Pakistan has granted exemption to SME Bank Ltd from submitting Long Form Report by its Statutory Auditors, with the condition that if any material gap on bank’s ICFR are reported by its inspection team/or Board Audit Committee ,then this exemption will be revoked. The SBP also advised to submit the Annual Assessment report on efficacy of ICFR through Board Audit committee to OSED.
Moreover SBP also advised to apprise its Board of Directors to take ownership of ICFR and Board Audit Committee to monitor progress and submit a detailed quarterly progress report regarding bridging of gaps to SBP
The Bank has revised the internal control policy in the year 2015 which emphasis that Management of the bank is responsible for maintaining a suitable system of ICFR that provides reasonable assurance regarding the reliability of financial reporting. The management should use a top down, risk-based approach, including the entity level and activity level controls in assessing financial reporting risks and the adequacy of controls
Farrukh Mansoor Malik Chief Financial Officer
Statement of Inter nal ControlFor the year ended December 31 , 2016
35
Grant Thornton Anjum Rahman
302 B, 3rd Floor Evacuee Trust ComplexAga Khan Road, F-5/1Islamabad Pakistan
Chartered AccountantsMember of Grant Thornton International Ltd.
T: +92 51 2271906, 2274665F: +92 51 2273874www.gtpak.com
Review Report to the Members on Statement of Compliance with the Public Sector Companies (Corporate Governance) Rules, 2013
We have reviewed the enclosed Statement of Compliance with the best practices contained in the Public Sector Companies (Corporate Governance) Rules, 2013 (the Code) prepared by the Board of Directors (the Board) of SME Bank Limited (“the Bank”) for the year ended December 31, 2016 to comply with Regulation G-1 of the Prudential regulation for Corporate/Commercial Banking issued by State Bank of Pakistan and the requirements of the provisions of Public Sector Companies (Corporate Governance) Rules, 2013.
The responsibility for compliance with the Code is that of the Board of the Bank. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Bank’s compliance with the provisions of the Code and report if it does not, and to highlight any non-compliance with the requirements of the Code. A review is limited primarily to inquiries of the Bank’s personnel and review of various documents prepared by the Bank to comply with the Code.
As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Boards’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Bank’s corporate governance procedures and risks.
The Code requires the Bank to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board for their review and approval of its related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm’s length transactions and transactions which are not executed at arm’s length price and recording proper justification for using such alternate pricing mechanism. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board upon recommendation of the Audit Committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm’s length price or not. Moreover, the Code also requires the Board to ensure compliance with the law as well as the Bank’s internal rules and procedures relating to public procurement, tender regulations and purchasing and technical standards, when dealing with suppliers of goods and services, in accordance with the PPRA Rules. We have not carried out any procedures to verify the compliance with the above stated requirements of PPRA Rules.
Based on our review, nothing has come to our attention, which causes us to believe that the Statement of Compliance does not appropriately reflect the Bank’s compliance, in all material aspects with the Code as applicable to the Bank for the year ended 31 December 2016.
Further, we highlight instances of non-compliance with the requirements of the Code as reflected in Schedule II to the Statement of Compliance.
GRANT THORNTON ANJUM RAHMANChartered AccountantsAudit Engagement Partner: Nadeem TirmiziIslamabad Date: March 03, 2017
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37
SME BANK LIMITEDUNCONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
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39
Grant Thornton Anjum Rahman
302 B, 3rd Floor Evacuee Trust ComplexAga Khan Road, F-5/1Islamabad Pakistan
Chartered AccountantsMember of Grant Thornton International Ltd.
T: +92 51 2271906, 2274665F: +92 51 2273874www.gtpak.com
Auditors ’ Repor t to the Members
We have audited the annexed unconsolidated statement of financial position of SME Bank Limited (the “Bank”) as at December 31, 2016 and the related unconsolidated profit and loss account, unconsolidated statement of comprehensive income, unconsolidated statement of changes in equity and unconsolidated cash flow statement, together with the notes forming part thereof (here-in-after referred to as the ‘financial statements’) for the year then ended, in which are incorporated the unaudited certified returns from the branches except for ten branches which have been audited by us and we state that except for the matters as stated in paragraphs ‘a’ ‘b’ and ‘c’ below, we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.It is the responsibility of the Bank’s Board of Directors to establish and maintain a system of internal control, and prepare and present the above financial statements in conformity with approved accounting standards and the requirements of the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these financial statements based on our audit.Except for the matters as stated in paragraph ‘a’ ‘b’ and ‘c’ below, we conducted our audit in accordance with the International Standards on Auditing as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also includes assessing accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, which in case of loans and advances covered more than sixty percent of the total loans and advances of the Bank, we report that:a) The Bank has investment in SME Leasing Limited (SMEL) which is carried in these financial
statements at Rs. 215.457 million and has outstanding running finance exposure of Rs. 126.58 million at the balance sheet date. SMEL continues to operate on a net loss basis and therefore the recoverability of investment and running finance exposure appears doubtful of recovery. Accordingly, we are unable to determine the extent of impairment that might be necessary to be recorded against the current carrying values of investment and running finance and its possible effect on current year losses and accumulated losses;
b) We are unable to verify the net carrying value of Rs 16.17 million of Trading Rights Entitlement Certificate (TREC) of Lahore Stock Exchange Limited (LSEL) because the Trading Rights in the stock exchange lapsed in the year 2014 as explained in Note 14.3.1; and
c) Deferred tax asset of Rs. 264.230 million has been recognized on the basis of expected net profits arising from future privatization of the Bank as described in Note 13.1 to the financial statements which we have not been able to verify.
d) Except for the possible effects of matters stated in paragraphs ‘a’, ‘b’ and ‘c’ above, in our opinion, proper books of account have been kept by the Bank as required by the Companies Ordinance, 1984 (XLVII of 1984), and the returns referred to above received from the branches have been found adequate for the purposes of our audit;
e) in our opinion, except for the possible effects of the matters stated in paragraphs ‘a’, ‘b’ and ‘c’ above:
(i) the unconsolidated statement of financial position and unconsolidated profit and loss account together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 (LVII of 1962) and the Companies Ordinance, 1984 (XLVII of 1984), and are in agreement with the books of account and are further
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Grant Thornton Anjum Rahman
Chartered AccountantsMember of Grant Thornton International Ltd.
in accordance with accounting policies consistently applied;(ii) the expenditure incurred during the year was for the purpose of the Bank’s business;
and(iii) the business conducted, investments made and the expenditure incurred during the year
were in accordance with the objects of the Bank and the transactions of the Bank which have come to our notice have been within the powers of the Bank;
f) Except for the possible effects of the matters stated in paragraphs ‘a’, ‘b’ and ‘c’ above, in our opinion and to the best of our information and according to the explanations given to us, the unconsolidated statement of financial position, unconsolidated profit and loss account, unconsolidated statement of comprehensive income, unconsolidated statement of changes in equity and unconsolidated cash flow statement together with the notes forming part thereof conform with the approved accounting standards as applicable in Pakistan, and give the information required by the Banking Companies Ordinance, 1962 (LVII of 1962) and the Companies Ordinance, 1984 (XLVII of 1984), in the manner so required and give a true and fair view of the state of the Bank’s affairs as at December 31, 2016 and its true balance of the loss, its comprehensive income, its cash flows and changes in equity for the year then ended; and
g) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Bank and deposited in the Central Zakat Fund established under section 7 of that Ordinance.
We draw attention to the following matters:i. Note 6.5 to the financial statements indicates that the Bank has incurred a net loss after tax of Rs.
199.242 million (2015: 282.157 million) and as of the reporting date the accumulated losses stood at Rs. 2.590 billion (2015: 2.296 billion). The Bank is short on cash which is indicated by waiver by State Bank of Pakistan in meeting the minimum capital requirement by 9.991 billion (2015: 9.697 billion) and the fact that during the last few years GOP’s budget allocation for the Bank has been negligible level. As stated in Note 6.5, these conditions indicate the existence of a material uncertainty that may cast significant doubt on the Bank’s ability to continue as a going concern; and
ii. Note 12.2.1 to the financial statements describes that the resolution of the matter of ownership of plots is subject to the review by the Ministry Finance and the Capital Development Authority for finalizing the status of rights and claims associated with the referred plots so as to enable the Bank to accordingly adjust its books of accounts. As the above review is pending the outcome of the matter is un-determinable at this stage and therefore adjustments, if any in this respect, have not been recognized in financial statements.
Our opinion is not qualified in respect of above matters. The financial statements of the Bank for the year ended December 31, 2015 were audited by another auditor who expressed an audit opinion on March 05, 2016. The referred opinion was qualified to indicate 1) auditors’ inability to determine whether any impairment was necessary against the Bank’s aggregate investment of Rs. 197 million in SMEL that appeared doubtful of recovery; and 2) the carrying value of Rs. 16.17 million of TREC of LSEL has not been fully provided for.
GRANT THORNTON ANJUM RAHMANChartered AccountantsAudit Engagement Partner: Nadeem Tirmizi
Islamabad Date: March 03, 2017
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2016 2015Note
ASSETSCash and balances with treasury banks 7 560,802 390,011 Balances with other banks 8 4,226 1,739 Lendings to financial institutions 9 445,000 885,000 Investments 10 4,869,535 4,117,491 Advances 11 2,771,720 2,751,710 Operating fixed assets 12 101,859 120,283 Deferred tax assets - net 13 256,177 - Other assets 14 368,896 350,292
9,378,215 8,616,526 LIABILITIESBills payable 15 95,443 114,107 Borrowings 16 3,460,326 2,888,685 Deposits and other accounts 17 5,228,716 4,770,201 Sub-ordinated loans - - Liability against assets subject to finance lease - - Deferred tax liabilities - net - - Other liabilities 18 573,082 487,217
9,357,567 8,260,210 NET ASSETS 20,648 356,316
REPRESENTED BYShare capital 19 2,392,507 2,392,507 Reserves 20 206,526 206,526 Unappropriated loss 20 (2,590,705) (2,296,206)
8,328 302,827 Surplus on revaluation of assets - net of tax 21 12,320 53,489
20,648 356,316
CONTINGENCIES AND COMMITMENTS 22
The annexed notes from 1 to 41 and annexure A form an integral part of these unconsolidated financial statements.
Rupees in '000
UNCONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
42
2016 2015Note
Mark-up/return/interest earned 23 615,070 705,267 Mark-up/return/interest expensed 24 441,204 436,280 Net mark-up/interest income 173,866 268,987
Reversal of provision against non-performing loans and advances - net 11.5 (2,102) (62,867) Reversal of provision for diminution in the value of investments 10.4 (62,164) - Bad debts written off directly - -
(64,266) (62,867) Net mark-up/interest income after provisions 238,132 331,854
NON MARK-UP/INTEREST INCOMEFee, commission and brokerage income 12,520 11,022 Dividend income 498 1,395 Income from dealing in foreign currencies - - Gain on sale of securities 25 32,733 32,536
- - Other income 26 1,519 2,981 Total non-markup/interest income 47,270 47,934
285,402 379,788
NON MARK-UP/INTEREST EXPENSESAdministrative expenses 27 740,332 645,250 Other provisions/write offs 14.4 1,888 8,282 Other charges 28 - 826 Total non-markup/interest expenses 742,220 654,358
(456,818) (274,570) Extra ordinary/unusual items - - LOSS BEFORE TAXATION (456,818) (274,570)
Taxation - Current 29 6,654 7,587 - Prior - - - Deferred (264,230) -
(257,576) 7,587 LOSS AFTER TAXATION (199,242) (282,157) Unappropriated loss brought forward (2,296,206) (1,972,670) Loss available for appropriation (2,495,448) (2,254,827)
Basic/diluted loss per share (Rupees) 30 (0.83) (1.18)
The annexed notes from 1 to 41 and annexure A form an integral part of these unconsolidated financial statements.
Rupees in '000
Unrealized gain on revaluation of investments classified as held for trading
UNCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
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2016 2015Note
Net loss after taxation (199,242) (282,157)
Recognition of net actuarial loss (95,257) (41,379) Comprehensive loss transferred to equity (294,499) (323,536)
Net change on remeasurement of available for sale investment to fair value (33,116) (9,514) 21 (8,053) -
(41,169) (9,514) Total comprehensive loss (335,668) (333,050)
The annexed notes from 1 to 41 and annexure A form an integral part of these unconsolidated financial statements.
Rupees in '000
Deferred tax
Components of comprehensive income not reflected in equity
Items that will not be reclassified to profit and loss accountOther comprehensive income:
UNCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
44
2016 2015Note
CASH FLOW FROM OPERATING ACTIVITIESLoss before taxation (456,818) (274,570) Less: Dividend income (498) (1,395)
(457,316) (275,965) Adjustments for non-cash/other items Depreciation 30,398 28,010 Amortization 710 733 Reversal of provision against non-performing advances - net (2,102) (62,867) Reversal of provision for diminution in the value of investment - net (62,164) - Gain on sale of operating fixed asset (260) (1,607) Other provisions 1,888 8,282
(31,530) (27,449) (488,846) (303,414)
(Increase)/Decrease in operating assets: Lendings to financial institutions 40,000 (285,000) Advances (17,908) 239,894 Other assets (excluding advance taxation) (19,313) (149,560)
2,779 (194,666) Increase/ (Decrease) in operating liabilities: Bills payable (18,664) 55,809 Borrowings 571,641 2,112,517 Deposits 458,515 1,427,099 Other liabilities (excluding current taxation) (9,392) 17,129
1,002,100 3,612,554 516,033 3,114,474
Income tax paid (7,833) (12,296) Net cash flow generated from operating activities 508,200 3,102,178 CASH FLOW FROM INVESTING ACTIVITIESNet investments in available-for-sale securities (749,683) (2,658,825) Net disinvestments/(investments) in held-to-maturity securities 26,687 (21,687) Dividend income received 498 1,395 Investments in operating fixed assets (14,565) (19,304) Proceeds from sale of operating fixed assets 2,141 3,375 Net cash used in investing activities (734,922) (2,695,046) CASH FLOW FROM FINANCING ACTIVITIES - - (Decrease)/Increase in cash and cash equivalents (226,722) 407,132 Cash and cash equivalents at beginning of the year 791,750 384,618 Cash and cash equivalents at end of the year 31 565,028 791,750
The annexed notes from 1 to 41 and annexure A form an integral part of these unconsolidated financial statements.
Rupees in '000
UNCONSOLIDATED CASH FLOW STATEMENTFor the year ended December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
45
Balance as at January 01, 2015 2,392,507 206,526 (1,972,670) 626,363
Net loss for the year ended December 31, 2015 - - (282,157) (282,157) Effect of recognition of actuarial loss - - (41,379) (41,379) Balance as at December 31, 2015 2,392,507 206,526 (2,296,206) 302,827
Net loss for the year ended December 31, 2016 - - (199,242) (199,242) Effect of recognition of actuarial loss - - (95,257) (95,257) Balance as at December 31, 2016 2,392,507 206,526 (2,590,705) 8,328
The annexed notes from 1 to 41 and annexure A form an integral part of these unconsolidated financial statements.
Total comprehensive income/(loss) for the year endedDecember 31, 2015
Total comprehensive income/(loss) for the year endedDecember 31, 2016
Rupees in '000
Share Capital Statutory reserve
Unappropriated loss Total
UNCONSOLIDATED STATEMENT OF CHANGE IN EQUITYFor the year ended December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
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Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
1 GENERAL INFORMATION
1.1 SME Bank Limited (the Bank) is a public limited company incorporated in Pakistan on October 30, 2001 under the Companies Ordinance, 1984 having its registered office at 56-F, Nazim-ud-Din Road, F-6/1, Blue Area Islamabad. The Bank obtained its business commencement certificate on April 16, 2005 which became effective from the date of its issue. The Bank is a Scheduled Commercial Bank engaged in the business of banking with the primary objective to support and develop Small and Medium Enterprise (SME) sector in Pakistan by providing necessary financial assistance and business support services on sustainable basis. The Bank is operating through a network of 13 commercial banking branches. Based on the latest credit rating report dated April 14, 2016 issued by PACRA Credit Rating Company Limited, credit rating of the Bank was “B” (Single B) in the long term and “B” (Single B) in the short term.
In terms of the provisions of the State Bank of Pakistan BSD circular No. 7 of 2009, the Bank was required to increase its paid up capital (net of losses) as at December 31, 2016 up to Rs. 10 billion. The State Bank of Pakistan (SBP) has granted exemption vide SBP letter # BPRD/BA&CP/646/1066/2017 dated January 13, 2017 from meeting Minimum Capital requirement till June 30, 2017 or completion of restructuring / privatization of the Bank, whichever is earlier.
1.2 Amalgamation of defunct RDFC and SBFC The Federal Government promulgated the Regional Development Finance Corporation
(RDFC) and Small Business Finance Corporation (SBFC) Amalgamation and Conversion Ordinance, 2001 (the Ordinance 2001) setting forth the mechanism of amalgamation of defunct RDFC and SBFC. Both these entities were Development Financial Institutions (DFIs). In pursuance of the Ordinance 2001, Finance Division, Ministry of Finance issued an Order (SRO (1) 2001) dated December 29, 2001 setting forth the scheme of amalgamation of RDFC and SBFC with the Bank effective January 1, 2002. Pursuant to this scheme entire assets and liabilities of defunct RDFC and SBFC as at December 31, 2001 were transferred to the Bank at fair value. These two institutions stand dissolved and ceased to exist effective January 1, 2002. The Bank allotted its shares to the share holders of defunct RDFC and SBFC in proportion to their shareholding therein based on the fair value of net assets of defunct RDFC and SBFC on December 31, 2001.
2 BASIS OF PRESENTATION
2.1 These unconsolidated financial statements have been presented in accordance with the requirements of format prescribed by the State Bank of Pakistan’s BSD Circular No. 4 dated February 17, 2006.
2.2 These unconsolidated financial statements are separate financial statements of the Bank in which the investment in subsidiary is stated at cost and has not been accounted for on the basis of reported results and net assets of the investees which is done in consolidated financial statements.
2.3 Items included in the unconsolidated financial statements are measured using the currency of the primary economic environment in which the Bank operates. The unconsolidated financial statements are presented in Pakistani Rupee, which is the Bank’s functional currency. Figures have been rounded off to the nearest thousand of rupees, unless otherwise stated.
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Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
3 STATEMENT OF COMPLIANCE
3.1 These unconsolidated financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) , provisions of and directives issued under the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962 and the directives issued by the State Bank of Pakistan. In case requirements differ, the provisions of and directives issued under the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 and the directives issued by the State Bank of Pakistan shall prevail.
International Accounting Standard 39, “Financial Instruments: Recognition and Measurement”, International Accounting Standard 40, “Investment Property” and International Financial Reporting Standard 7,”Financial Instruments: Disclosure” are not applicable to banking companies in Pakistan. Accordingly, the requirements of these Standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the State Bank of Pakistan through various circulars.
3.2 Standards, interpretations and amendments to approved accounting standards that are not yet effective
The following standards, amendments and interpretations of approved accounting standards are effective for accounting periods, beginning on or after January 01, 2017:
Effective date (accounting periods beginning on or after)
IFRS 2 Share Based Payments - Amendments January 01, 2018 IFRS 16 Leases January 01, 2019 IAS 7 Statement of Cash Flows - Amendments January 01, 2017 IAS 12 Income Taxes - Amendments January 01, 2017 IAS 40 - Investment Property - Amendments January 01, 2018 - Annual improvements: IAS 28 Investments in Associates and Joint Ventures - Amendments January 01, 2018 IFRS 12 Disclosure of Interest in Other Entities - Amendments January 01, 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration - Amendments January 01, 2018
The above mentioned standards, amendments and interpretations to published standards and new interpretation to existing standard are either not relevant to the Bank’s operations or are not expected to have significant impact on the Bank’s financial statements other than increase in disclosure in certain cases.
Other than the aforesaid standards, interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards, which have not been adopted and are under consideration of relevant committee of the Institute of Chartered Accountants of Pakistan (ICAP):
- IFRS 1 – First Time Adoption of International Financial Reporting Standards - IFRS 9 – Financial Instruments - IFRS 14 – Regulatory Deferral Accounts - IFRS 15 – Revenue from Contract with Customers
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Implementation of IFRS 7 has been held in abeyance for Banks and non-banking finance companies engaged in investment finance services, discounting services and housing finance services. The Implementation of IAS 39 and IAS 40 has been held in abeyance by the SBP for banks and DFIs.
3.3 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year
There are certain other and amended standards, interpretations and amendments that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2016 but are considered not to be relevant or do not have any significant effect on the Bank’s operations and therefore not detailed in these financial statements.
4 BASIS OF MEASUREMENT
4.1 These unconsolidated financial statements have been prepared under the historical cost convention as modified for certain investments which are carried at fair value, and defined benefit pension and gratuity plan, defined benefit unfunded gratuity scheme, unfunded compensated absences and benevolent fund which are carried at present value of defined benefit obligations net of fair value of plan assets, wherever applicable.
4.2 Use of critical accounting estimates and judgments The preparation of unconsolidated financial statements in conformity with approved
accounting standards as applicable in Pakistan requires the use of certain accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. The Bank uses estimates and assumptions concerning the future. The resulting accounting estimate will, by definition, seldom equal the related actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are as follow:
i. Classification of investments (note 5.2)ii. Provision/ impairment against investments (note 5.2), advances (note 5.4) and other
assets (note 5.6)iii. Valuation and impairment of available for sale securities (note 5.2 and 5.6)iv. Useful life and residual value of property and equipments, intangible assets (note 5.5)v. Taxation (note 5.8)vi. Staff retirement benefits (note 5.9)
5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The accounting policies adopted in the preparation of these unconsolidated financial statements are consistent with those of the previous financial year.
5.1 Cash and cash equivalents Cash and cash equivalents comprise of cash and balances with treasury banks, balances with
other banks and call money lendings.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
49
5.2 Investments Investments other than those categorised as held-for-trading are initially recognised at fair
value which includes transactions costs associated with the investments. Investments classified as held-for-trading are initially recognised at fair value, and transaction costs are expensed in the profit and loss account.
All regular way purchases / sales of investment are recognised on the trade date, i.e., the date the Bank commits to purchase / sell the investments. Regular way purchases or sales of investment require delivery of securities within the time frame generally established by regulation or convention in the market place.
The Bank has classified its investment portfolio, except for investments in subsidiary into ‘held-for-trading’, ‘held-to-maturity’ and ‘available-for-sale’ as follows:
Held for trading These are securities which are acquired with the intention to trade by taking advantage of
short-term market / interest rate movements and are to be sold within 90 days. These are carried at market value, with the related unrealized gain / (loss) on revaluation being taken to profit and loss account.
Held to maturity These represent investments acquired by the Bank with the intention and ability to hold them
upto maturity. These are carried at amortized cost less impairment if any. Impairment in debt securities is determined in accordance with the requirements of Prudential Regulations issued by SBP.
Available for sale These are investments that do not fall under the held-for-trading or held-to-maturity categories.
These are carried at market value except in case of unquoted securities where market value is not available, which are carried at cost less provision for diminution in value, if any. Surplus / (deficit) on revaluation is taken to ‘surplus / (deficit) on revaluation of assets’ account shown below equity. Provision for diminution in value of investments in respect of unquoted shares is calculated with reference to book value of the same. On derecognition or impairment in quoted available-for-sale investments, the cumulative gain or loss previously reported as ‘surplus / (deficit) on revaluation of assets’ below equity is included in the profit and loss account for the period.
Provision for diminution in values of securities (other than term finance certificates) is made after considering impairment if any in their values, where the decline in prices of available for sale equity securities is significant or prolonged, it is considered impaired and included in unconsolidated profit and loss account. Provision for diminution in the value of term finance certificates is made as per Prudential Regulations issued by State Bank of Pakistan.
Held-for-trading and quoted available-for-sale securities are marked to market with reference to ready quotes on Reuters page (PKRV) or MUFAP or the Stock Exchanges, as the case may be.
Investment in subsidiary Investment in subsidiary is carried at cost less impairment, if any. However the investment in
subsidiary is not marked to market as per prudential regulations issued by SBP.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
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5.3 Agreements for sale and purchase of securities (repo and reverse repo) Securities sold under repurchase agreement (repo) are retained in the unconsolidated financial
statements as investments and a liability for consideration received is included in borrowings. The difference between sale and repurchase price is treated as mark-up expense and recognized over the period of contract.
Securities purchased under agreement to resell (reverse repo) are included in lendings to financial institutions. The difference between purchase and resale price is treated as mark-up income and recognized over the period of the contract.
5.4 Advances Advances are stated net off specific and general provisions. Provisions are made in accordance
with the requirements of Prudential Regulations issued by the SBP and charged to the profit and loss account. These regulations prescribe an age based criteria (as supplemented by subjective evaluation of advances by the banks) for classification of non-performing loans and advances and computing provision / allowance there against. Such regulations also require the Bank to maintain general provision / allowance against its Small Entity (SE) advances portfolio at specified percentage of such portfolio.
Advances are written off when there is no realistic prospect of recovery.
5.5 Capital work-in progress, operating fixed assets, intangibles, depreciation and amortization
Capital work-in-progress Capital-work-in progress is stated at cost less accumulated impairment losses, if any. These are
transferred to operating fixed assets as and when the assets are available for use.
Operating fixed assets-owned These are stated at cost less impairment loss and accumulated depreciation except for leasehold
land. Land is stated at cost less impairment, if any.
Maintenance and normal repairs are charged to unconsolidated profit and loss account as and when incurred. Major renewals and improvements are capitalized.
Depreciation Depreciation is charged on straight line method at the rates given in note 12.3, commencing
from the month in which the asset is available for use. No depreciation is charged in the month of disposal of the asset. The residual value, useful life and depreciation method is reviewed and adjusted, if appropriate, at each balance sheet date.
Gains or losses on disposal of property and equipment are taken to the unconsolidated profit and loss account.
Assets subject to finance lease Assets subject to finance lease are stated at cost less accumulated depreciation at the rates
similar to the bank’s owned assets and impairment loss (if any). The outstanding obligation under finance lease less financial charges allocated to future periods is shown as liability. Finance charges are calculated at interest rates implicit in the lease and are charged to unconsolidated profit and loss account in the period in which these are incurred.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
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Intangible assets An intangible asset is recognized only if it is identifiable, the Bank has control over the asset,
it is probable that economic benefits will flow to the enterprise and the cost of the asset can be measured reliably.
All intangible assets that meet the recognition criteria are initially measured at cost and are amortized on a straight line basis at the rate given in note 12.4 commencing from the month when these assets are available for use. Intangible assets are stated at cost less accumulated amortization and impairment losses, if any. The residual value, useful life and amortization method is reviewed and adjusted, if appropriate, at each balance sheet date.
5.6 Impairment The carrying amount of assets are reviewed at each balance sheet date for impairment,
whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If such indication exists, and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amount. The resulting impairment loss is taken to the unconsolidated profit and loss account. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying value that would have been determined net of depreciation/amortization, if no impairment loss had been recognized.
The available for sale equity investments are impaired when there has been a significant or prolonged decline in the value below its cost. Impairment loss is recognized in unconsolidated profit & loss account.
5.7 Deposits Deposits are recorded at the nominal values of proceeds received. Markup accrued on deposits
is recognised separately as part of other liabilities and is charged to unconsolidated profit and loss account on a time proportion basis.
5.8 Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax
is recognised in the unconsolidated profit and loss account, except to the extent that it relates to items recognised directly in other comprehensive income or below equity, in which case it is recognised in other comprehensive income or below equity.
Current Provision for current tax is the expected tax payable on the taxable profit for the year using
tax rates applicable at the date of unconsolidated statement of financial position and any adjustment to tax payable for previous years.
Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary
differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit at the rates that are expected to apply to the period when the differences reverse based on the tax rates that have been enacted. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax asset is reduced to the extent it is no longer probable that the related tax benefits will be realized.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
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The Bank also recognizes deferred tax asset/ liability on deficit/ surplus on revaluation of investments which is adjusted against the related deficit/ surplus in accordance with the requirements of International Accounting Standard on ‘Income Taxes’ (IAS 12).
The Bank takes into account the current income tax law and decisions taken by the taxation authorities. Instances where the Bank’s views differ from the views taken by the income tax department at the assessment stage and where the Bank considers that its view on items of material nature is in accordance with law, the amounts are shown as contingent liabilities.
5.9 Staff retirement and other benefits The Bank operates following staff retirement and other benefit schemes for its employees:
Defined benefit plan- Pension and gratuity scheme Fully funded defined benefit pension and gratuity scheme for permanent employees.
Contributions are made in accordance with the actuarial valuation which is carried out periodically using ‘Projected Unit Credit Method’. All actuarial gains and losses are recognized immediately through other comprehensive income.
Defined benefit unfunded gratuity scheme The Bank operates a defined benefit unfunded gratuity scheme for its contractual employees.
The obligation under the defined benefit unfunded gratuity scheme is recognized on the basis of actuarial valuation using the ‘Projected Unit Credit Method’.
Benevolent fund The Bank also operates a contributory benevolent fund for all its eligible employees (defined
benefit scheme). Contributions to this fund were made equally by the Bank and employees till March 2002. Thereafter it is wholly contributed by the Bank at the rate of 2% of basic salary with a ceiling of Rs. 200 per month per employee. Annual contribution towards the defined benefit scheme are made on the basis of actuarial advice using the Projected Unit Credit Method.
Compensated absences The Bank provides compensated absences, an unfunded scheme, as per entitlement to all its
permanent and contractual employees. For its eligible employees, related provision is made in accordance with actuarial valuation. Provision for the year is charged to unconsolidated profit and loss account. The amount recognized in unconsolidated statement of financial position represents present value of defined benefit obligation.
Defined benefit plans are provided to employees of the Bank. Calculations in this respect require assumptions to be made of future outcomes, the principal ones being in respect of increase in remuneration, the expected long-term return on plan assets and the discount rate used to convert future cash flows to current values. Calculations are sensitive to changes in the underlying assumptions.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
53
5.10 Revenue recognition
5.10.1 Advances
Advances disbursed by SME Bank Limited: Markup/ interest on performing advances is recognized on a time proportion basis over the
term of loan and advances. Markup/ interest/ penal markup recoverable on non performing advances is recognized on receipt basis. Mark-up / interest on rescheduled / restructured advances and investments is recognised as permitted by the regulations of the SBP.
Advances disbursed by defunct RDFC and defunct SBFC : Advances and related markup are suspended. Markup/ interest on advances is recognized on
receipt basis.
5.10.2 Return on investments Return on investments is recognized on a time proportion basis except on classified investment
which is recognized on receipt basis. Any premium paid or discount received on purchase of securities is amortized through unconsolidated profit and loss account over the remaining period of maturity on time apportionment basis.
5.10.3 Dividend income Dividend income is recognized when the Bank’s right to receive the dividend is established.
5.10.4 Interest, fee, brokerage and commission Interest, fee, brokerage and commission, profit on other investments, bank deposits and
staff loans is recognized on accrual basis. Income on non-funded facilities (fee, commission, documentation charges etc.) is recognized on receipt basis except commission on bank guarantees which is recognized on accrual basis.
5.11 Off setting Financial assets and liabilities are off set and the net amount is reported in the unconsolidated
statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or realize the asset and settle the liability simultaneously.
5.12 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of
a qualifying asset as part of the cost of that asset are capitalized. Other borrowing costs are recognized as an expense in the period in which it incurs.
5.13 Provisions Provisions are recorded when the Bank has a present legal or constructive obligation as a
result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provision for guarantee claims and other off balance sheet obligations is recognized when intimated and reasonable certainty exists to settle the obligations. Expected recoveries are recognized by debiting customer accounts. Charge to unconsolidated profit and loss account is stated net off expected recoveries.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
54
5.14 Financial assets and liabilities All financial assets and financial liabilities are recognized at the time when the Bank becomes a
party to the contractual provisions of the instrument. A financial asset is derecognised where (a) the rights to receive cash flows from the asset have expired; or (b) the Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (i) the Bank has transferred substantially all the risks and rewards of the asset, or (ii) the Bank has neither transferred nor retained substantially all the risk and rewards of the asset, but has transferred control of the asset. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Any gain or loss on derecognition of the financial assets and financial liabilities is taken to income currently.
5.15 Segment reporting A segment is the distinguishable component of the Bank that is subject to risks and rewards
that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing products and services within a particular economic environment. Segment information is presented as per the Bank’s functional structure and the guidance of the State Bank of Pakistan. The Bank’s primary format of reporting is based on business segments:
5.15.1 Business segments
Trading and sales This segment undertakes the Bank’s treasury, money market and capital market activities.
Commercial banking It includes loans, deposits and other transactions with individuals/ staff, small and medium
enterprises and corporate customers.
5.15.2 Geographical segments The Bank operates only in Pakistan.
5.16 Appropriation to reserves Dividend and appropriation to reserves (except appropriation required by law) after the
balance sheet date are recognized as liability in the Bank’s financial statement in the year in which these are approved.
6 FINANCIAL RESTRUCTURING AND GOING CONCERN ASSUMPTION
6.1 The Government of Pakistan (GoP) assisted by Asian Development Bank (ADB) is working on SME Sector Development Programme (SME SDP). Loan agreement for this programme between GoP and ADB and project agreement between ADB, SBP, Small and Medium Enterprise Development Authority (SMEDA) and the Bank have been signed on February 10, 2004. This programme, apart from other aspects on policy matrix relating to SME sector of Pakistan, also envisaged restructuring of SME Bank Limited. Salient features of the restructuring of the Bank are given below:
i) Adjustment of accumulated balances due from SBP on account of its share in profits
and losses of the Bank against credit lines provided by SBP;
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
55
ii) Payment of Rs 3 billion to SBP before January 1, 2004 against outstanding credit lines and conversion of balance of remaining credit lines into a loan repayable in full by June 30, 2006;
iii) Raising the paid-up capital to Rs 1,100 million by issuing additional shares to GoP;
iv) The Ministry of Finance (MoF) shall ensure that SBP’s shareholding in the Bank is terminated through the purchase of SBP held shares at nominal value by shareholders or otherwise;
v) 100% provision to be made against non performing financial assistance extended by the defunct RDFC and SBFC prior to January 1, 2002 which provision to be adjusted against SBP credit lines. SBP will recover this amount from proceeds of ADB loan to GoP;
vi) Reduction in the number of recovery branches, staff rationalization through Voluntary Separation Scheme (VSS), human resource audit and hiring of new professional staff on merit;
vii) Reimbursement by GoP of costs related to VSS launched for all regular employees;
viii) SBP to issue a banking license to the Bank on compliance with all conditions of restructuring and applicable SBP regulations. The commercial banking operations will be separate from the recovery operations of the defunct RDFC and SBFC portfolio and the two operations will be run as independent units within the Bank; and
ix) Privatization of the Bank by June 2006.
6.2 Current status of the above referred financial restructuring is given below:
i) Accumulated balances of Rs 3,275.752 million due from SBP on account of its share in profits and losses of the Bank have been adjusted against credit lines provided by SBP;
ii) Rs. 7,393 million has been paid to SBP since 2003, to fully adjust the loan liability.
iii) Paid-up capital has been increased to Rs. 2,393 million by issue of 73,502,453 additional shares of Rs 10 each to GoP without right issue in 2004, issue of 40,000,000 additional shares of Rs 10 each to GoP without right issue in 2005, issue of 50,000,000 additional bonus shares of Rs 10 each to GoP without right issue in 2006 and issue of 39,250,700 additional shares of Rs. 10 each to GoP without right issue in 2007. Proceeds against issue of additional shares in 2004 were paid by GoP to SBP against the Bank’s loan balance due to SBP;
iv) Provision of Rs 1,283.196 million against non performing financial assistance extended by the defunct RDFC and SBFC was adjusted against credit lines of SBP in 2003;
v) VSS was approved by the Board of Directors of the Bank on November 7, 2003. 707 employees were relieved under the scheme upto December 31, 2005 and the
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
56
aggregate reported cost for 707 employees was Rs. 1,764.268 million, which has been received by the bank by March 31, 2007;
vi) Human resource technical audit has been completed and report has been submitted to the Bank;
vii) Banking license was issued by SBP on September 13, 2004 and the Bank has started banking operations after the issue of certificate for commencement of banking business by SBP on April 16, 2005;
viii) Privatization Commission (PC) has constituted a transaction committee which is represented by members from the Privatization Commission, State Bank of Pakistan, Ministry of Finance and the Bank. Privatization Commission has approved M/s BMA Capital as Financial Advisors for the Bank and due diligence exercise for the privatization of the Bank has been carried out in the year 2008; and
6.3 Further restructuring of SME Bank: In compliance to the decisions taken during meeting at Ministry of Finance dated September
14, 2009 following actions have been undertaken.
i) VSS offered to the regular employees of the Bank in November 2009, wherein 138 employees opted for VSS offered vide Circular No. HO/HR&SD/2009/5385 dated October 15, 2009. These employees have been relieved at a total cost of Rs. 653 million with effect from November 14, 2009;
ii) Refer Note 11.2, for status of transfer of Old portfolio of defunct RDFC & defunct SBFC to National Bank of Pakistan; and
iii) Government of Pakistan have allocated an amount of Rs. 2 billion in the annual budget 2012-13, Rs. 1 billion for the year 2013-14 and Rs. 0.5 billion for the year 2014-15 for equity injection into the Bank. However, same has not been materialized.
6.4 Current Status of Privatization of SME Bank GOP decided to divest its equity stake in the Bank alongwith management control to a strategic
investor through Privatization Commission (PC).
PC appointed Financial advisory consortium (FCC) comprising of Elixir Securities Pakistan (Pvt) Limited, Bridge Factor (Pvt) Limited, KPMG Taseer Hadi & Co (financial and tax advisor) and Mohsin Tayebaly & co. (Legal counsel) to conduct this transaction.
Transaction structure was approved by PC board on January 17, 2017 and recommended to Cabinet Committee on privatization (CCOP).
CCOP approved the transaction structure in its meeting held on January 27, 2017 . PC invited Expression of Interest (EOI) on February 14, 2017, from reputed local and international investors who have an interest in entering the process towards acquiring strategic shareholding in SME Bank. Last date to receive Statement of Qualification (SOQ) is March 17, 2017. Silent features of the transaction structure are as follows:
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
57
i) SBP will issue a new banking license of specialzed nature (with at least 60% advances for SME) to the investors.
ii) Investor to maintain MCR of Rs. 6 billion on staggered basis, 2 billion would be required to be injected upfront while 1 billion each year for next four years.
iii) SME Leasing limited, a majority owned listed subsidiary of SME Bank, would be the part of transaction on “as is basis”.
iv) The defunct SBFC and RDFC portfolios appearing in books of SME Bank will not be part of the transaction.
v) CDA plots in G-5/2 and G-7 Islamabad appearing in the books of the Bank will not be part of the transaction.
vi) The Bank can be used as a platform for delivering Digital Finance/Fintech/Branch less banking services, subject to fulfilment of applicable requirement of SBP.
vii) The SBP has offered a variety of incentives including youth business loans scheme, credit guarantee schemes, export finance schemes, refinancing facilities amongst others to promote SME financing. The potential investor will be able to avail these incentives offered by the SBP, subject to fulfillment of requisite operational requirements.
6.5 Going concern assumption and minimum capital requirement During the current year the Bank has incurred a net loss after tax of Rs. 199.242 million (2015:
282.157 million) and as of the reporting date the accumulated losses stood at Rs. 2.590 billion (2015: 2.296 billion). The Bank, due to cash deficit, is short by Rs. 9.991 billion (2015: 9.697 billion) in meeting the minimum capital requirements (MCR) of Rs. 10 billion which has been waived by SBP and further due to the reason that during the last few years GOP’s budget allocation for the Bank has remained negligible. These conditions indicate the existence of material uncertainty that may cast significant doubt on the Bank’s ability to continue as a going concern and therefore, it may be unable to realize its assets and discharge its liabilities in the ordinary course of business. Having regard to the above, GOP being a majority shareholder of the Bank with 94% of shares has invited expression of interest from reputed local and or international investors who have an interest in entering the process towards acquiring strategic shareholding in Bank with management control. The management of the Bank strongly believes that the above will attract significant interest considering the infra structure of the Bank and because of the restrictions by State Bank of Pakistan on further issue of banking license. In view of above the management of the Bank believes that the use of going concern assumption in preparation of these financial statements is appropriate.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
58
2016 20157. CASH AND BALANCES WITH TREASURY BANKS Note
In hand:Local currency 71,994 76,593 National Prize Bonds - 152
With State Bank of Pakistan (SBP) in:Local currency current accounts 7.1 453,489 275,450
With National Bank of Pakistan in:Local currency current accounts 35,319 37,816 Local currency deposit account - -
560,802 390,011
7.1
2016 20158. BALANCES WITH OTHER BANKS Note
In Pakistan: On current accounts 482 498 On deposit accounts 8.1 13,744 11,241 Provision for doubtful balance with the bank 8.2 (10,000) (10,000)
4,226 1,739
8.18.2
2016 20159. LENDINGS TO FINANCIAL INSTITUTIONS Note
Call money lendings - 400,000 Letter of placement 445,000 485,000
9.1 445,000 885,000
9.1 Particulars of lendingIn local currency 9.1.1 445,000 885,000 In foreign currencies - -
445,000 885,000
9.1.1
Rupees in '000
Rupees in '000
Rupees in '000
Deposits with the State Bank of Pakistan are maintained to comply with the statutory requirements issuedfrom time to time.
These carry interest rate ranging from 3.75% to 4.00% (2015: 1.50 % to 6.50%) per annum.Provision for doubtful balance is in respect of deposit of Rs. 10 million with Indus Bank Limited which isunder liquidation.
These lendings carry mark-up rate ranging between 6.15% to 6.30% (2015: 6.50% to 6.95%) per annum andhave maturity period upto 1 month (2015: upto 2 months).
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
59
10.
INVE
STM
EN
TS
Not
e
10.1
Inve
stm
ents
by
type
s:Av
aila
ble-
for-s
ale
secu
ritie
sM
arke
t Tre
asur
y Bi
lls (M
TBs)
10.3
561,4
19
1,733
,403
2,29
4,82
2
872,
651
1,
444,
602
2,31
7,25
3
Pa
kist
an In
vest
men
t Bon
ds (P
IBs)
10.3
656,
720
1,707
,104
2,36
3,82
4
209,
997
1,
376,
401
1,58
6,39
8
Fu
lly p
aid o
rdin
ary
shar
es/m
utua
l fun
d64
,936
-
64
,936
70
,248
-
70
,248
1,2
83,0
75
3,
440,
507
4,
723,
582
1,
152,
896
2,82
1,00
3
3,
973,
899
Hel
d-to
-mat
urity
secu
ritie
sTe
rm D
epos
it Re
ceip
ts (T
DRs
)10
.835
,000
-
35
,000
61
,687
-
61
,687
Ce
rtific
ates
of I
nves
tmen
ts (C
OIs
)76
2
-
762
76
2
-
762
35
,762
-
35
,762
62
,449
-
62
,449
In
vest
men
t in
subs
idia
rySM
E L
easin
g Li
mite
d10
.921
5,45
7
-
21
5,45
7
21
5,45
7
-
215,
457
In
vest
men
ts a
t cos
t1,5
34,2
94
3,
440,
507
4,
974,
801
1,43
0,80
2
2,
821,
003
4,25
1,80
5
10.4
(125
,639
)
-
(1
25,6
39)
(187
,803
)
-
(1
87,8
03)
Inve
stm
ents
net
of i
mpa
irmen
t1,4
08,6
55
3,
440,
507
4,
849,
162
1,24
2,99
9
2,
821,
003
4,06
4,00
2
216,
002
14,3
71
20,3
73
2,67
9
50
,810
53
,489
T
otal
inve
stm
ents
1,4
14,6
57
3,
454,
878
4,
869,
535
1,
245,
678
2,87
1,81
3
4,
117,
491
Less
: Pro
visio
n fo
r dim
inut
ion
in v
alue
of in
vest
men
ts
Surp
lus o
n re
valu
atio
n of
ava
ilabl
e-fo
r-sale
-sec
uriti
es
Rup
ees i
n '0
00
Tot
al
2016
2015
Hel
d by
th
e ba
nk
Giv
en a
s co
llate
ral
Tot
al
Held
by
the
bank
G
iven
as
colla
tera
l Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
60
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201510.2 Investments by segments: Note
Federal Government Securities:- Market Treasury Bills (MTBs) 10.3 2,294,822 2,317,253 - Pakistan Investment Bonds (PIBs) 10.3 2,363,824 1,586,398
4,658,646 3,903,651
Fully paid up ordinary shares:- Listed companies/mutual fund 10.6 17,494 22,805 - Unlisted companies 10.7 47,443 47,443
64,936 70,248
Subsidiary company:- SME Leasing Limited 10.9 215,457 215,457
Other investments:- Certificates of Investment (COIs) 762 762 - Term Deposit Receipts (TDRs) 10.8 35,000 61,687
35,762 62,449 Total investments at cost 4,974,801 4,251,805
Provision for diminution in value of investments 10.4 (125,639) (187,803) Investment (net of provision) 4,849,162 4,064,002
Surplus on revaluation of available for sale securities-net 21 20,373 53,489 Total investments 4,869,535 4,117,491
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
61
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
10.3 Principal terms of investments in Federal Government securities
Market Treasury Bills On maturityOn maturity
2016 201510.4 Particulars of provision for diminution in value of investments Note
Opening balance 187,803 187,803 (Reversal)/charge for the year 10.9 (62,164) - Closing balance 125,639 187,803
10.4.1 Particulars of provision in respect of type and segmentAvailable-for-sale securities- Fully paid up ordinary shares
- Quoted Companies 16,912 20,797 - Unlisted Companies 20,000 20,000 - Delisted Companies 10.7.2 1,003 1,003
Held-to-maturity securities- Certificates of Investment 762 762
Investment in subsidiary - SME Leasing Limited 10.9 86,962 145,241 125,639 187,803
Market value Rating Market value Rating10.5 Quality of available-for-sale securities
Market Treasury Bill 10.5.1 2,292,186 unrated 2,316,915 unratedPakistan Investment Bonds 10.5.1 2,382,102 unrated 1,635,058 unrated
Fully paid up ordinary shares 10.5.2National Refinery Limited - - 3,347 AA+/A1+PICIC Investment Fund Limited 1,914 3-Star 1,573 1-StarLotte Pakistan PTA Limited 664 unrated 519 unratedDewan Salman Fibre Limited 92 unrated 38 unratedPakistan Telecommunication Company Limited 148 unrated 142 unratedNishat Chunian Mills Limited 24 unrated 13 A-/A-2Crescent Textile Mills Limited 1 unrated 1 unratedInvest Capital Investment Bank Limited 2,471 unrated 1,543 unrated
5,314 7,176 4,679,602 3,959,149
10.5.1 These are Government of Pakistan guaranteed securities.
10.5.2 Rating of these equity securities represent 'Entity/Funds Rating'.
10.5.3
Rupees in '000
Coupon/mark up payment
At maturitysemi-annually
Principal payment
2016 2015
Securities have either been rated by 'The Pakistan Credit Rating Agency Limited' (PACRA) or 'JCR-VIS Credit Rating CompanyLimited' (JCR-VIS). These ratings reflect independent credit risk assessment by respective credit rating entities.
6.42% to 12.52%
Name of investment Maturity Rate per annum
Pakistan Investment Bonds
Rupees in '000Note
Market Treasury Bills and Pakistan Investment Bonds are securities eligible for re-discounting with the State Bank of Pakistan.
July 2018 to April 2025July 2017 to August 2017 5.77% to 6.02%
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
62
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
10.6 Investments in listed companies/mutual fund
2016 20152016 2015 Note
- 15,000 - National Refinery Limited - 5,311 137,668 137,668 18.12 PICIC Investment Fund Limited 2,494 2,494 79,775 79,775 10.15 Lotte Chemical Pakistan Limited 810 810 18,449 18,449 18.24 Dewan Salman Fibre Limited 337 337 8,600 8,600 68.20 Pakistan Telecommunication Company Ltd. 586 586
385 385 77.49 Nishat (Chunian) Limited 30 30 18 18 34.84 Crescent Textile Mills Limited 1 1
1,117,876 1,117,876 11.84 Invest Capital Investment Bank Limited 13,236 13,236 17,494 22,805
Impairment in available for sale listed shares 10.6.1 (16,912) (20,797) Investment in listed shares (net of impairment) 582 2,008
Surplus on revaluation of listed shares - (net) 4,730 5,167 Market value as on December 31 5,312 7,175
10.6.1 Impairment in available for sale listed sharesNational Refinery Limited - 3,885 PICIC Investment Fund Limited 2,215 2,215 Lotte Chemical Pakistan Limited 683 683 Dewan Salman Fibre Limited 310 310 Pakistan Telecommunication Company Limited 441 441 Nishat (Chunian) Limited 27 27 Invest Capital Investment Bank Limited 13,236 13,236
16,912 20,797
10.7 Particulars of investments held in unlisted companies, fund and delisted companiesISE Towers REIT Management Co. Ltd. (formaly Islamabad Stock Exchange Limited) 10.7.1 18,000 18,000 LSE Financial Services Limited (formaly Lahore Stock Exchange Limited) 10.7.1 8,440 8,440 AKD Venture Fund 10.7.1 20,000 20,000 Companies delisted from stock exchange 10.7.2 1,003 1,003
47,443 47,443
(10.7.1.2)Rs. in '000
10.7.1 ISE Towers REIT Management Co. Ltd. 1% 3,034,603 5.93 11.67 18,000 Mian AyyazAfzal
LSE Financial Services Limited 1% 843,975 10.00 17.64 8,440 Naveed AminAKD Venture Fund 8% 2,000,000 10.00 - 20,000 Sohaib Umar
10.7.1.110.7.1.2
Name of chief
executive% age
No. of ordinary shares/units
Paid-up value per share/ average price
per unit (Rs) Rupees in '000
Break up value
Name of company/mutual fund
Total paid up value
Cost/ paid-up value per unit
held
Break up value per share is based on the audited financial statements of investees for the year ended June 30, 2016.
Number of units held
Management has fully provided the investment in AKD Venture Fund as irrecoverable and impaired.
-------Rupees-------
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
63
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
10.7.2 Particulars of investments in shares of companies delisted from stock exchange and are currently under liquidation.
Rupees Rs. in '000Mohib Exports Company Limited 4,600 23.81 109 Sunflow Citrus Limited 100,000 4.22 422 Tawakal Garments Company Limited 4,000 38.38 154 Tristar Shipping Lines Limited 5,000 23.56 118 Zahoor Textile Mills Limited 15,200 13.16 200
1,003
10.8
10.9 Subsidiary company SME Leasing Limited (SMEL) was incorporated on July 12, 2002 as a public limited company under the CompaniesOrdinance, 1984 and currently listed on Pakistan Stock Exchange Limited. Upto the year 2005, SMEL was a wholly ownedsubsidiary of the Bank, however, a public offering of 10 million ordinary shares was made during the year 2006 at an offerprice of Rs. 11 per share. The Bank subscribed for 1,405,205 shares in SMEL and holds 73.14% (2015: 73.14%) shares inSMEL as at December 31, 2016. This investment is designated as a 'Strategic Investment' in terms of BPD Circular Letter No.16 dated August 1, 2006. SMEL continue to operate on a net loss basis and the Bank maintains provision of Rs. 86.962 million(2015: Rs. 145.24 million) against the aforesaid investment of Rs. 215.457 million.
Number of shares
held
This represents investment in term deposit receipts (TDRs) carrying mark up at the rate of 6.60 % (2015: 6.90 % to 8.20 %)per annum and having maturities upto January 2017 (2015: February 2016).
Total paid- up value
Cost/Paid-up value per
share
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
64
11.2 Assignment of Non-Performing Loan (NPL) portfolios of defunct SBFC & RDFC to National Bank of Pakistan (NBP)
The Board through its resolution by circular No.10/circ/33 dated March 08, 2010 duly endorsed by the members in their meeting dated May 20, 2010 has approved the transfer and assignment of fully non-performing loan portfolios of defunct SBFC & RDFC to NBP on the basis of deferred transfer price. Subsequently, transfer and assignment agreement was executed between the Bank and National Bank of Pakistan at Karachi on July 01, 2010 (Effective date). According to the agreement, the transferor (SME) and the acquirer (NBP) acknowledge, declare and confirm the transfer, assignment and vesting of all rights, interests, privileges, title, powers and remedies in favour of the acquirer with respect to:
a) the non-performing loans, collateral and the debtors;
b) all agreements, deeds, instruments and other documents relating to the non-performing loans, debtors and collateral and to which the transferor is, or legally deemed to be, a party or a beneficiary;
c) all legal proceedings by and against the transferor with respect to the non-performing loans, the debtors and collateral, which may be pending before any court, tribunal, arbitrator or authority, without being subject to any liabilities of the transferor to any person.
The agreed transfer price is an amount equal to 50% of the net recoveries.
Under the above referred arrangements, portfolio of defunct SFBC & RDFC outstanding as on June 30, 2010 (Except outstanding loans of RDFC where facility of Equity Participation Fund had also been extended) were transferred to NBP.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
2016 201511. ADVANCES Note
Loans, cash credits, running finances, etc - in PakistanExtended by:
Defunct SBFC 11.2 4,375,964 4,376,451 Defunct RDFC 11.2 505,341 505,441 SME Bank Ltd 2,995,996 2,990,029
Due from ex-employees 11.2 16,214 17,534 Due from employees 133,944 121,174
8,027,459 8,010,629 Net investment in finance lease - in Pakistan 11.3 1,253 1,253 Advances - gross 8,028,712 8,011,882
Provision for non-performing advancesSpecific provision (5,244,601) (5,251,998) General provision (12,391) (8,174)
11.5 (5,256,992) (5,260,172) Advances - net of provision 2,771,720 2,751,710
11.1 Particulars of Advances (Gross)11.1.1 In local currency 8,028,712 8,011,882
In foreign currencies - - 8,028,712 8,011,882
11.1.2 Short term (upto one year) 1,388,256 1,477,300 Long term (over one year) 6,640,456 6,534,582
8,028,712 8,011,882
11.2
a) the non-performing loans, collateral and the debtors;
c) all legal proceedings by and against the transferor with respect to the non-performing loans, the debtors andcollateral, which may be pending before any court, tribunal, arbitrator or authority, without being subject to anyliabilities of the transferor to any person.
Rupees in '000
Assignment of Non-Performing Loan (NPL) portfolios of defunct SBFC & RDFC to National Bank ofPakistan (NBP)The Board through its resolution by circular No.10/circ/33 dated March 08, 2010 duly endorsed by the members intheir meeting dated May 20, 2010 has approved the transfer and assignment of fully non-performing loan portfoliosof defunct SBFC & RDFC to NBP on the basis of deferred transfer price. Subsequently, transfer and assignmentagreement was executed between the Bank and National Bank of Pakistan at Karachi on July 01, 2010 (Effectivedate). According to the agreement, the transferor (SME) and the acquirer (NBP) acknowledge, declare and confirmthe transfer, assignment and vesting of all rights, interests, privileges, title, powers and remedies in favour of theacquirer with respect to:
b) all agreements, deeds, instruments and other documents relating to the non-performing loans, debtors andcollateral and to which the transferor is, or legally deemed to be, a party or a beneficiary;
The agreed transfer price is an amount equal to 50% of the net recoveries.
65
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
On request of the Bank’s management, the decision to transfer of the portfolio was revisited by the Board of Directors in its 65th meeting held on July 13, 2011 and resolved that the agreement of assignment of the old portfolio to NBP should be cancelled and Board’s pronouncement for revocation of agreement to Ministry of Finance to arrange retrieval/restoration of old portfolio to the Bank in the interest of recovery of public funds.
In the meeting held on March 04, 2013 the board of directors reconsidered the position taken earlier on this matter on grounds of related cost of recovery and infrastructure on request of then management and decided that since the Bank is still on the privatization list, BoD would be able to decide on portfolio after Bank’s delisting from privatization.
The incumbent management has again reviewed the situation and noted that no comparative analysis/study pertaining to transfer of portfolio was conducted which could justify the decision of assigning old portfolio to NBP.
In view of the above, Board was requested in its 83rd meeting, held on August 30, 2014 and the management of the Bank was allowed to proceed further in pursuance of resolution / direction passed regarding the subject matter in 64th and 65th meeting of the board of directors held on May 16, 2011 and July 13, 2011 respectively by overruling to verdict of the board of directors given on the issue in 75th Meeting of board of directors held on March 04, 2013.
Pending cancellation of transfer and assignment agreement with NBP non- performing loan portfolios of defunct SBFC and RDFC stands recognised in these unconsolidated financial statements. An income of Rs. 9.408 million has been incorporated in these financial statements against the recorded recoveries of non-performing loan portfolios of defunct SBFC and RDFC since their transfer and assignment to NBP till March 2016. The share of income of the Bank has been determined according to transfer price mechanism agreed between the Bank and NBP. The recoveries made thereafter by the Bank from the borrowers of defunct SBFC & RDFC have been recognized as liability to NBP, while the Funds received by NBP to be apportioned in terms of this agreement have not been accounted for by the Bank.
66
0NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
11.3
Lease rentals receivable 973 - - 973 973 - - 973 Residual value 280 - - 280 280 - - 280 Minimum lease payments 1,253 - - 1,253 1,253 - - 1,253 Financial charges for future periods - - - - - - - -
1,253 - - 1,253 1,253 - - 1,253
11.4
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
Other assets especially mentioned 8,767 - 8,767 25 - 25 25 - 25 Substandard 13,553 - 13,553 - - - - - - Doubtful 6,747 - 6,747 238 - 238 238 - 238 Loss 5,389,745 - 5,389,745 5,244,338 - 5,244,338 5,244,338 - 5,244,338
5,418,812 - 5,418,812 5,244,601 - 5,244,601 5,244,601 - 5,244,601
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
Other assets especially mentioned 2,313 - 2,313 - - - - - - Substandard 6,836 - 6,836 54 - 54 54 - 54 Doubtful 42,462 - 42,462 488 - 488 488 - 488 Loss 5,465,971 - 5,465,971 5,251,456 - 5,251,456 5,251,456 - 5,251,456
5,517,582 - 5,517,582 5,251,998 - 5,251,998 5,251,998 - 5,251,998
11.5 Particulars of provision against non-performing advances
Opening balance 5,251,998 8,174 5,260,172 5,315,765 9,100 5,324,865 Adjusted against transferred portfolio (1,078) - (1,078) (1,789) - (1,789) Charge/(reversals)Charge for the year 44,394 7,088 51,482 50,438 2,594 53,032 Reversal for the year (50,713) (2,871) (53,584) (112,379) (3,520) (115,899)
(6,319) 4,217 (2,102) (61,941) (926) (62,867) Amounts written off - - - (37) - (37) Closing balance 5,244,601 12,391 5,256,992 5,251,998 8,174 5,260,172
11.5.1
11.5.2 Particulars of provisions against non-performing advances
`In local currency 5,244,601 12,391 5,256,992 5,251,998 8,174 5,260,172 In foreign currencies - - - - - -
5,244,601 12,391 5,256,992 5,251,998 8,174 5,260,172
minimum lease payments
Rupees in '000
Specific General Total Specific General Total
Category of Classification
2016
Classified Advances
2015
Not later than one
year
Later than one and less than five years
Over five years Total
Advances include Rs. 5,418.81 million (2015: Rs. 5,517.58 million) which have been placed under non-performing status as detailedbelow:
Not later than one
year
Later than one and less than five years
Over five years Total
Rupees in '000
2016
NET INVESTMENT IN FINANCE LEASE
Rupees in '000
Category of Classification
20152016
2015Classified Advances
Provision Required Provision Held
Rupees in '000
Provision Required Provision Held
2016 2015
General Total
The FSV benefit availed in last years has been reduced by Rs. 84.362 million (net of FSV benefit availed during the year), which has resulted inincreased charge for specific provision for the current year ended by the same amount. The FSV benefit is not available for cash or stockdividend / bonus to employees. Had the FSV benefit not recognized, loss before and after tax for the current year would have been lowered byRs. 84.362 million (2015: lower by Rs. 62.193 million).
Specific
Rupees in '000
General Total Specific
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
67
0NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201511.6 Particulars of write offs: Note
11.6.1 Against provisions 11.5 - 37 Directly charged to Profit & Loss account - -
- 37
11.6.2 Write offs of Rs. 500,000 and above 11.7 - - Write offs of below Rs. 500,000 - 37
- 37
11.7 Details of loan write off of Rs. 500,000 and above
11.8 2016 2015Note
Balance at beginning of the year 128,508 102,442 Loans granted during the year 65,382 60,984 Repayments - net (38,871) (34,918) Balance at end of the year 155,019 128,508
Debts due by subsidiary companyBalance at beginning of the year 126,846 155,044 Loans granted during the year - - Repayments - net (266) (28,198) Balance at end of the year 126,580 126,846
281,599 255,354
2016 201512 OPERATING FIXED ASSETS Note
Capital work-in-progress 12.1 2,092 1,054 Property and equipment 12.3 131,093 149,992 Less: Provision held against property and equipment 12.2.1 (32,044) (32,044) Property and equipment - net 99,049 117,948 Intangible assets 12.4 718 1,281 Operating fixed assets 101,859 120,283
12.1 Capital work-in-progressThis represesnts advances to suppliers and contractors.
12.2 Lease hold land Book value at the beginning of the year 12.2.1 64,087 64,087 Cost of additions during the year - - Book value of the deletions during the year - - Less: Provision held against property and equipment 12.2.1 (32,044) (32,044)
32,043 32,043
Rupees in '000
Particulars of loans and advances to directors, associated companies, etc. Rupees in '000Debts due by directors, executives or officers of the bank or any of themeither severally or jointly with any other persons:
Rupees in '000
In terms of sub-section 3 of Section 33-A of the Banking Companies Ordinance, 1962, the Statement in respect of written-off loans or any other financial relief of five hundred thousand rupees or above allowed to a person(s) during the yearended December 31, 2016 is given at Annexure-A.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
68
12.2.1 This represents the aggregate cost of lands measuring 500 square yards and 4667 square yards located in Islamabad in sectors G-7 and G-5/2 respectively originally allotted to SBFC and RDFC respectively. CDA required payment of Rs. 3.637 million for AGR, delayed charges & extension surcharges. However, on receiving draft of the required amount, CDA returned the same in view of proposed privatization of the Bank. The management of the Bank has taken up the matter with the Privatization Commission Government of Pakistan (PC). Pursuant to which Departmental Audit Committee (DAC) of PC directed the Bank to take up the case of restoration of plots through Ministry of Finance, Government of Pakistan (MOF). Upon management’s perusal and in compliance with directions of DAC, MOF vide its letter dated 12 February 2014 has advised CDA to reconsider the Bank’s request for restoration of the above said land and take steps for early restoration of lands. Management believes that since the Bank is a successor of RDFC and SBFC by virtue of Section 5 of the Amalgamation and Conversion Ordinance, 2001 (the Ordinance), the Bank is legal owner of aforementioned lands and is not required to pay the market value of the plot considering the provisions of the Ordinance and the fact that the lands are in the possession of the Bank also. However, despite the provisions of the Ordinance and being in occupation of the lands, the Bank on the advice of SBP to classify these plots in doubtful category, has recorded an impairment of Rs. 32.044 million. Subsequent to the above, Cabinet Committee on Privatization (CCoP) in its meeting held on January 27, 2017 has directed CDA and MOF for resolution of matter by finalizing the status of rights and claims associated with above plots so as to enable the Bank to accordingly adjust the books of accounts, if required, prior to moving forward with the transaction of the privatization of the Bank. Thus Privatization Commission has excluded the above plots from the privatization transaction by specifically stating it in invitation for expression of interest for acquisition of the Bank’s shares dated February 14, 2017. Due to the above reasons and pending outcome of above review by CDA and MOF, the financial effects of settlement and finalization of rights and claims associated with the referred plots are un-determinable at this stage and therefore adjustments, if any in this respect, have not been recognized in these financial statements.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
69
12.3
Prop
erty
and
equ
ipm
ent
Leas
e ho
ld la
nd (n
ote
12.2
.1)
64,0
87
-
-
64
,087
32,0
44
-
-
32
,044
32,0
43
-
Leas
e ho
ld im
prov
emen
ts33
,101
368
-
31
,211
22,1
83
5,
726
(171
)
25,6
50
5,
561
33 1
/3(1
70)
(2
,088
)
2,
088
Build
ings
15,7
94
-
-
15
,794
7,98
4
78
9
-
8,77
3
7,
021
5O
ffice
furn
iture
and
fixt
ures
9,68
2
28
-
9,18
7
7,
517
532
(1
21)
7,
527
1,66
0
20
(122
)
(401
)
401
O
ffice
equ
ipm
ent
60,9
67
1,
066
-
60,4
67
29
,542
6,57
1
(4
46)
34
,548
25,9
19
15
(447
)
(1,1
19)
1,11
9
Co
mpu
ter e
quip
men
t93
,399
949
-
92
,227
79,6
35
8,
420
(875
)
85,9
35
6,
292
33 1
/3(8
76)
(1
,245
)
1,
245
Veh
icles
52,2
72
10
,969
-
61,2
00
32
,450
8,35
9
(1
38)
40
,647
20,5
53
20
(2,0
17)
(24)
24
32
9,30
2
13,3
80
-
33
4,17
3
211,
355
30
,397
(1,7
51)
235,
124
99
,049
(3,6
32)
(4,8
77)
4,87
7
As
sets
hel
d un
der f
inan
ce le
ase
Veh
icles
1,54
7
-
-
1,
547
1,54
6
1
-
1,
547
-
2033
0,84
9
13,3
80
-
33
5,72
0
212,
901
30
,398
(1,7
51)
236,
671
99
,049
(3,6
32)
(4
,877
)
4,87
7
12.4
Inta
ngib
le a
sset
sCO
ST
Com
pute
r sof
twar
e26
,885
147
-
27
,032
25
,604
71
0
-
26,3
14
718
33
1/3
Rup
ees i
n '0
00
COST
DE
PRE
CIAT
ION
/ IM
PAIR
ME
NT
As a
t Ja
nuar
y 01
, 20
16
Addi
tions
/(d
ispo
sals)
Adju
stm
ents
As a
t
D
ecem
ber
31, 2
016
As a
t Ja
nuar
y 01
, 20
16
Char
ge fo
r th
e ye
ar/
impa
irmen
t(D
ispo
sals)
As a
t
D
ecem
ber
31, 2
016
Net
boo
k va
lue
as a
t D
ec 3
1, 20
16
Dep
reci
atio
n ra
te p
er
annu
m %
Rup
ees i
n '0
00
AMO
RT
ISAT
ION
As a
t Ja
nuar
y 01
, 20
16
Addi
tions
/(d
ispo
sals)
Adju
stm
ents
As a
t
D
ecem
ber
31, 2
016
As a
t Ja
nuar
y 01
, 20
16
Char
ge fo
r th
e ye
ar/
impa
irmen
t(D
ispo
sals)
As a
t
D
ecem
ber
31, 2
016
Net
boo
k va
lue
as a
t D
ec 3
1, 20
16
Amor
tisat
ion
rate
per
an
num
%
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
70
Prop
erty
and
equ
ipm
ent
Leas
e ho
ld la
nd (n
ote
12.2
.1)
64,0
87
-
-
64
,087
32,0
44
-
-
32
,044
32,0
43
-
Leas
e ho
ld im
prov
emen
ts32
,694
1,22
8
-
33
,101
17,5
18
5,
486
-
22,1
83
10
,918
33 1
/3-
(8
21)
82
1
Build
ings
15,7
94
-
-
15
,794
7,19
5
78
9
-
7,98
4
7,
810
5O
ffice
furn
iture
and
fixt
ures
10,0
91
1,
738
-
9,68
2
9,
348
316
(8
)
7,
517
2,16
5
20
(8)
(2,1
39)
2,13
9
Li
brar
y10
-
(10)
-
10
-
10
-
-
20O
ffice
equ
ipm
ent
59,3
38
3,
304
-
60,9
67
24
,215
7,00
0
(7
03)
29
,542
31,4
25
15
(705
)
(970
)
970
Co
mpu
ter e
quip
men
t99
,117
474
-
93
,399
77,4
95
8,
332
(1,1
14)
79,6
35
13
,764
33 1
/3(1
,114
)
(5
,078
)
5,
078
Veh
icles
51,5
88
11
,408
-
52,2
72
36
,407
5,00
1
(8
,866
)
32
,450
19,8
22
20
(10,
632)
(9
2)
92
332,
719
18
,152
-
329,
302
20
4,23
2
26,9
24
(1
0,69
1)
211,
355
11
7,94
7
-
(12,
459)
(9
,110
)
-
-
-
9,
110
-
-
Asse
ts h
eld
unde
r fin
ance
leas
eV
ehicl
es5,
926
-
-
1,54
7
4,
839
1,08
6
-
1,
546
1
20(4
,379
)
(4
,379
)
33
8,64
5
18,1
52
-
33
0,84
9
209,
071
28
,010
(15,
070)
21
2,90
1
117,
948
(1
6,83
8)
(9,1
10)
9,
110
Inta
ngib
le a
sset
sCO
ST
Com
pute
r sof
twar
e28
,080
939
-
26
,885
27,0
05
73
3
-
25,6
04
1,
281
33 1
/3(2
,134
)
2,
134
28,0
80
93
9
(2,1
34)
26
,885
27
,005
73
3
2,13
4
25
,604
1,
281
COST
DE
PRE
CIA
TIO
N/
IMPA
IRM
EN
T
As a
t Jan
uary
01
, 201
5(D
ispos
als)
As a
t
D
ecem
ber 3
1,
2015
Net
boo
k va
lue
as a
t D
ec 3
1, 2
015
Dep
recia
tion
rate
per
ann
um
%Ru
pees
in '0
00
Add
ition
s/(d
ispos
als)
Adj
ustm
ents
As a
t
D
ecem
ber 3
1,
2015
As a
t Jan
uary
01
, 201
5
Char
ge fo
r the
ye
ar/
impa
irmen
t
Net
boo
k va
lue
as a
t D
ec 3
1, 2
015
Am
ortis
atio
n ra
te p
er a
nnum
%
Rupe
es in
'000
AM
ORT
ISA
TIO
N
As a
t Jan
uary
01
, 201
5A
dditi
ons/
(disp
osals
)A
djus
tmen
tsA
s at
Dec
embe
r 31,
20
15
As a
t Jan
uary
01
, 201
5
Char
ge fo
r the
ye
ar/
impa
irmen
t(D
ispos
als)
As a
t
D
ecem
ber 3
1,
2015
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
71
12.5 Details of disposal of fixed assets:
VehiclesToyota Corolla 2,014 134 1,880 2,047
2,014 134 1,880 2,047
1,618 1,617 1 94 2016 3,632 1,751 1,881 2,141
2015 16,838 15,070 1,768 3,375
12.6
Book valueParticulars of assets Cost Accumulated
depreciationMode of disposal
Particulars of buyers
Rupees in '000
Sale proceeds
Insurance claim for accident
Other assets havingbook value of less thanRs. 250,000 or cost lessthan of Rs.1,000,000whichever is less
M/s United Insurance Co.
Gross carrying amount of fully depreciated assets that are still in use is Rs. 150.361 million (2015: Rs. 148.365 million).
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
72
2016
2015
13.
DE
FER
RE
D T
AX A
SSE
T -
NE
TN
ote
Def
erre
d ta
x as
set a
risin
g in
resp
ect o
f:A
ccele
rate
d ta
x de
prec
iatio
n an
d am
ortiz
atio
n-
(1
,092
)
Una
bsor
bed
depr
eciat
ion
and
amor
tizat
ion
51,3
15
-
Unu
sed
tax
loss
es21
2,91
5
1,
092
13.1
264,
230
-
Def
erre
d ta
x (li
abili
ty) /
ass
et a
risin
g in
resp
ect o
f:Su
rplu
s on
reva
luat
ion
of in
vest
men
t(8
,053
)
-
13.2
256,
177
-
13.1
13.2
Rec
onci
liatio
n of
def
erre
d ta
x Ba
lanc
e R
ecog
nize
dR
ecog
nize
dBa
lanc
e at
R
ecog
nize
dR
ecog
nize
dBa
lanc
e at
at J
anua
ry 1,
in p
rofit
and
in
Dec
embe
r 31,
in p
rofit
and
in
Dec
embe
r 31,
2015
loss
acc
ount
Equ
ity20
15lo
ss a
ccou
ntE
quity
2016
Def
erre
d ta
x as
set a
risin
g in
resp
ect o
f:A
ccele
rate
d ta
x de
prec
iatio
n &
am
ortiz
atio
n-
-
-
-
51
,315
-
51
,315
U
nuse
d ta
x lo
sses
-
-
-
-
212,
915
-
21
2,91
5
-
-
-
-
264,
230
-
264,
230
Def
erre
d ta
x lia
bilit
y ar
isin
g in
resp
ect o
f:Su
rplu
s on
reva
luat
ion
of in
vest
men
t-
-
-
-
-
(8
,053
)
(8,0
53)
D
efer
red
tax
(liab
ility
)/as
set -
net
-
-
-
-
26
4,23
0
(8
,053
)
256,
177
2016
2015
13.3
298,
669
582,
551
Rup
ees i
n '0
00
Tem
pora
ry d
iffer
ence
s for
whi
ch n
o de
ferr
ed ta
x as
set i
s rec
ogni
zed
due
to u
ncer
tain
tim
ing
of fu
ture
taxa
ble
prof
its
Rup
ees i
n '0
00
Rup
ees i
n '0
00
The
Bank
has
reco
gniz
edth
ede
ferr
edta
xas
setw
hich
repr
esen
tsm
anag
emen
t’sbe
stes
timat
eof
the
prob
able
bene
fits
expe
cted
tobe
reali
zed
infu
ture
year
sin
the
form
ofre
duce
dta
xlia
bilit
yas
the
Bank
wou
ldbe
able
tose
toff
the
prof
itsea
rned
inth
ose
year
saga
inst
loss
esca
rried
forw
ard.
The
unde
rlyin
gas
sum
ptio
nfo
rrec
ogni
tion
ofde
ferr
edta
xas
seti
sthe
expe
cted
priv
atiz
atio
nof
the
Bank
whi
chw
ould
resu
ltin
fres
heq
uity
injec
tion
from
the
new
stra
tegi
csh
areh
olde
roft
heBa
nkas
deta
iled
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Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
73
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201514 OTHER ASSETS Note
Income/mark-up accrued in local currency 14.1 139,996 142,479 Advances, deposits, advance rent and other prepayments 50,964 46,401 Non-banking asset acquired in satisfaction of claims 14.2 147,066 138,600 Due from benevolent fund-unsecured 33.4.2 1,658 321 Advance taxation 3,440 2,261 Receivable from NBP - net 11.2 4,690 - Receivable from subsidiary company 994 1,194 Receivable from Equity Participation Fund 2,561 1,354 Trading right entitlement certificate 14.3 21,560 21,560 Receivable from Speedway Fondmetall Pakistan Limited 19,640 19,640 Receivable against factorized portfolio 6,048 6,048 Others 68,703 66,930
467,320 446,788 Less: Provision held against other assets 14.4 98,424 96,496 Other assets (net of provision) 368,896 350,292
14.1
14.2
2016 201514.3 Trading right entitlement certificate Note
LSE Financial Services Limited (formaly Lahore Stock Exchange) 14.3.1 21,560 21,560 ISE Towers REIT Management Company Limited (formaly Islamabad Stock Exchange) 14.3.1 - -
21,560 21,560
14.3.1
Rupees in '000
In accordance with the requirements of the Stock Exchanges (Corporatization, Demutualization andIntegration) Act 2012 (the Act) during the year 2012, the Bank received equity shares and one Trading RightEntitlement certificate each in lieu of its membership cards in Lahore Stock Exchange (LSE) and IslamabadStock Exchange (ISE).
Rupees in '000
This balance has been arrived at after adjusting interest in suspense of Rs. 4,057.57 million (2015: Rs. 4,053.86million).This includes Rs. 138.6 million being the successful bid made by SME Bank for acquiring Bungalow No. 45,Block-C/3, Gulberg III, Lahore mortgaged with the Bank as a security in a defaulted loan and Rs. 4.2 millionpertaining stamps / stamps duties for registration of sale certificate issued by the High Court to SME Bank/Auction Purchaser of Bungalow No. 45, Block-C/3, Gulberg III, Lahore. The auction was carried out on 30June 2015, subsequent to the auction, the Honourable Lahore High Court through its decision dated 14 July2015 allowed the Bank to adjust the bid price against its outstanding dues from the borrower against thefinance facilities extended to the borrower, suspended mark-up and cost of funds. The auction wasconfirmed by the High Court on April 19, 2016 after hearing objection raised by the counter party. The salecertificate was issued by the High Court on June 30, 2016 and the same has been registered with concernedregistrar on July 28, 2016. Ownership of the house in record of Excise and Taxation Department has beentransferred in name of SME Bank Ltd. The Bank applied for possession of the acquired house, which hasbeen accepted by the court after hearing both the parties. The court has issued order to bailiff for takingpossession of the house to handover the Bank. Possession of the said property has not yet been handed overto the Bank. The market value of property is Rs. 171.2 million (2015: Rs. 160 million)
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
74
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201514.4 Provision against other assets
Opening balance 96,496 88,184 Charge for the year 1,955 9,482 Reversals (67) (1,200)
1,888 8,282 Transferred to NBP 40 30 Closing balance 98,424 96,496
Provision balance is in respect of:Income/mark-up accrued in local currency:
Receivable from Universal Leasing Limited 22 22 Receivable from Speedway Fondmetall Pakistan Limited 19,640 19,640
Receivable against factorized portfolio 6,048 6,048 Other receivables - SME Portfolio 41,232 39,691 Legal charges recoverable from borrowers - SBFC & RDFC 22,630 22,213 Trading right entitlement certificate - TREC 5,390 5,390 Others 3,462 3,492
98,424 96,496
Pursuant to provisions of the Act the Bank’s trading rights in LSE and ISE have lapsed on August 26, 2014.In view of above the SBP required the Bank to classify these rights under sub-standard category due toremote chances of their recovery that resulted into recognition of provision in the March 2015 of Rs. 5.39million representing 25% of gross carrying values of these rights. The management of the Bank incollaboration with other financial institutions affected by the same cause is pursuing the concerned authoritiesfor the reinstatement of these rights.
Based on the revalued assets and liabilities of LSE and ISE, a total of 843,975 ordinary shares of Rs. 10 eachand 3,034,603 ordinary shares of Rs. 10 each in the corporatized and demutualized LSE and ISE respectivelywere allotted to the Bank in a dematerialized form. Out of the aforementioned, 337,590 ordinary shares inLSE and 1,213,841 ordinary shares in ISE (i.e. 40 percent) have been received in the Bank’s CDC participantaccount whereas 506,385 ordinary shares in LSE and 1,820,762 ordinary shares in ISE (i.e. 60 percent) havebeen held in the blocked sub accounts maintained under LSE and ISE participant ID with Central DepositoryCompany of Pakistan Limited. The rights attached to 60% shares held in blocked account shall be dealt within accordance with the provisions contained in the Act. The blocked account shall be operated by the Boardof Directors of the stock exchanges in the manner prescribed by the Securities and Exchange Commission ofPakistan.In case of LSE, par value of shares received by the Bank was recognised during the year ended December 31,2012 as available for sale investment and the excess of value of shares over the carrying value of membershipcard in LSE was recognised as trading right. However, in case of ISE, since the par value of shares receivedby the Bank was more than the carrying value of membership card, investment in ISE has been recognised tothe extent of the carrying value of membership card and trading right in ISE has been recognised at nil value.
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
75
2016 201515. BILLS PAYABLE Note
In Pakistan 95,443 114,107 Outside Pakistan - -
95,443 114,107
16. BORROWINGSIn Pakistan 3,460,326 2,888,685 Outside Pakistan - -
3,460,326 2,888,685
16.1 Particulars of borrowings with respect to currenciesIn local currency 3,460,326 2,888,685 In foreign currencies - -
3,460,326 2,888,685
16.2 Details of borrowings secured/unsecuredBorrowings from State Bank of Pakistan - unsecured 16.2.1 31,515 48,892 Repurchase agreement borrowings - secured 16.2.2 3,428,811 2,839,793
3,460,326 2,888,685
16.2.1
16.2.2
2016 201517. DEPOSITS AND OTHER ACCOUNTS Note
CustomersFixed deposits 1,001,313 1,046,304 Savings deposits 2,861,928 2,505,838 Current accounts - non-remunerative 596,943 465,904 Margin accounts 33,730 34,946
4,493,914 4,052,992 Financial InstitutionsRemunerative deposits 17.2 733,061 715,760 Non-remunerative deposits 1,741 1,449
5,228,716 4,770,201
17.1 Particulars of depositsIn local currency 5,228,716 4,770,201 In foreign currencies - -
5,228,716 4,770,201
17.2
Rupees in '000
This represents financing facility obtained from State Bank of Pakistan (SBP) under the scheme "FinancingFacility for Storage of Agri Produce (FFSAP)" vide SMEFD circular No. 08 dated June 04, 2010 &IH&SSMEFD circular No. 05 dated February 23, 2015. These carry mark up at the rates of 2.50 % & 3.25%(2015: 2.50 % & 3.25%) per annum respectively and is repayable in quarterly instalments.
These represent local currency funds borrowed from State Bank of Pakistan (SBP) and local inter-bankmarket against Government securities carrying mark-up rates ranging from 6.10% to 6.25% (2015: 6.20% to6.50%) per annum for period upto two months (2015: upto two months).
Rupees in '000
Remunerative deposits include Rs. 380.094 million (2015: Rs. 365.757 million) related to Equity ParticipationFund.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
76
2016 201518. OTHER LIABILITIES Note
Mark-up/return/interest payable in local currency 50,284 58,941 Unearned commission on guarantees 1,367 1,567 Accrued expenses 8,783 8,085 Accounts payable 7,662 12,762 Sundry creditors 18.1 118,847 117,325 Payable to NBP - net 11.2 - 5,229 Branch adjustment account 1,099 4,860
Defined benefit pension 33.1.2 211,427 112,383 Defined benefit unfunded gratuity scheme 33.2.2 67,626 53,821 Unfunded compensated absences 33.3.3 72,245 77,399
Security deposits against lease 280 280 Employees' VSS payments withheld 18.2 13,474 14,026 Income tax withheld payable 18,099 18,911 Others 1,889 1,628
573,082 487,217
18.1
18.2 Employees VSS payments of Rs. 13.474 million (2015: Rs. 14.026 million) have been withheld due to legalcases pending in the courts against employees, filed by the Bank and ex-employees.
This includes Rs. 90.6 million (2015: Rs. 90.6 million) payable either to State Bank of Pakistan (SBP) orFederal Board of Revenue (FBR) on VSS payments related to pension on finalization of tax assessment offinancial year 2009.
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
77
19. SHARE CAPITAL19.1 Authorized Capital
2016 2015 2016 2015
1,000,000,000 1,000,000,000 Ordinary shares of Rs. 10 each 10,000,000 10,000,000
19.2 Issued, subscribed and paid up capital2016 2015 2016 2015
Ordinary shares 152,853,153 152,853,153 Fully paid in cash 1,528,532 1,528,532 50,000,000 50,000,000 Issued as bonus shares 500,000 500,000 36,397,547 36,397,547 Issued for consideration other than cash 363,975 363,975
239,250,700 239,250,700 2,392,507 2,392,507
Number of 2016 201519.3 Break-up of share capital is as follows: shares % age
Federal Government 224,615,978 93.88 2,246,160 2,246,160 National Bank of Pakistan 6,121,095 2.56 61,211 61,211 United Bank Limited 3,975,003 1.66 39,750 39,750 Habib Bank Limited 1,987,501 0.83 19,875 19,875 MCB Bank Limited 1,490,619 0.62 14,906 14,906 Allied Bank Limited 774,351 0.33 7,744 7,744 Industrial Development Bank Limited 286,146 0.12 2,861 2,861 Directors 7 - - -
239,250,700 100 2,392,507 2,392,507
Statutory Un-appropriated 20. RESERVES Reserve loss
Balance at beginning of the year 206,526 (2,296,206) (2,089,680) (1,766,144) - (294,499) (294,499) (323,536)
Balance at end of the year 206,526 (2,590,705) (2,384,179) (2,089,680)
20.1
2016 201521. SURPLUS ON REVALUATION OF ASSETS Note
Surplus/(Deficit) on revaluation of available-for-sale securitiesFederal Government securities
- Market Treasury Bills (MTBs) (2,635) (338) - Pakistan Investment Bonds (PIBs) 18,278 48,660
15,643 48,322 Fully paid up ordinary shares/units
- Listed companies/mutual funds 4,730 5,167 10.1 & 10.2 20,373 53,489
- Deferred tax liability (8,053) - 12,320 53,489
Rupees in '000Number of shares
Number of shares Rupees in '000
Rupees in '000
Rupees in '000
Rupees in '000
2016 2015
As at 31 December, 2016, the Bank has availed net of tax benefit of Forced Sales Value (FSV) of Rs. 152.784 million (2015:Rs. 237.146 million) in respect of pledged stocks, mortgaged residential, commercial, industrial properties (land and buildingonly) and plant and machinery under charge held as collateral against non-performing assets. Reserves and un-appropriatedprofit to that extent are not available for distribution by way of cash, stock dividend or bonus to employees.
pincome/(loss) transferred to equity
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
78
2016 201522 CONTINGENCIES AND COMMITMENTS Note
22.1 Transaction-related contingent liabilitiesGuarantees in favour of: Government 22.1.1 153,246 178,737 Others - -
153,246 178,737
22.1.1
2016 2015
22.2 Other Contingenciesa. Claims not acknowledged as debt from various borrowers 56,857 22,826 b.
49,800 49,800 c. 10,000 15,000
d.
612,707 612,707 e.
6,163 13,505 f.
211,716 211,716 g. 130,310 113,260
22.3 Commitments in respect of forward lendingCommitments to extend credit 40,700 126,450
22.4 Commitments for the acquisition of operating fixed assets 13,963 9,053 22.5 Commitments against repo/reverse repo transactions
Sale and repurchase agreements 3,454,878 2,871,813 22.6 Other commitments
Undrawn facilities 106,375 151,813 22.7 Bills for collection
Payable in Pakistan 91 50
Tax demands of Rs. 612.707 million raised by the Income Tax Authorities related toVSS staff cost (tax year-2005) has been decided in favour of the Bank. However taxauthorities have filed appeal before ATIR against the decision of the CommissionerIncome Tax (Appeals). The management of the Bank strongly believes and expectsfavourable outcome and therefore no provision has been made for this effect in thefinancial statements.The Bank and the income tax department have filed an appeal before the AppellateTribunal Inland Revenue against the appellate order of the Commissioner (Appeals),who had partly set aside the order of the Taxation officer, resulting in taxable incomeof Rs. 151.2 million and tax liability of Rs. 52.9 million against the declared tax loss ofRs. 23.5 million and tax liability of Rs. 4.2 million for the tax year 2008. Withoutprejudice to the appeal, the demand has been paid by the Bank; however no provisionhas been made in these financial statements as the management is confident of afavorable outcome.The Bank is in appeal before the Appellate Tribunal Inland Revenue against theamended assessment order for the tax year 2010, whereby the taxation officer hadassessed income of Rs. 636.5 million and tax liability of Rs. 222.7 million as againstincome of Rs. 7.5 million and tax liability of Rs. 3.9 million admitted by the Bank. TheCIR(A) decided the appeal partly in the Bank's favor while setting aside certainmatters. The re-assessment has not yet been finalized by the taxation officer. Thedepartment has also filed an appeal before Appellate Tribunal Inland Revenue againstthe order of Commissioner (Appeals). The appeals have not yet been fixed for hearing.
Back benefits and claims of staff/employees under litigation.
Rupees in '000
Damages claim by borrower for delay in recording repayments received fromborrower, not acknowledged as debt.Damages claimed by an ex-employee of the then RDFC involved in Ravi Securities(Pvt) Limited and Taas Securities (Pvt) Limited affairs and a director of RaviSecurities (Pvt) Limited and Taas Securities (Pvt) Limited not acknowledged as debt.
Rupees in '000
This includes expired letters of guarantees aggregating to Rs. 18.866 million (2015: 54.986 million) for which formalitiesfor return of original documents are in process.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
79
2016 201523 MARK-UP/ RETURN/ INTEREST EARNED
On loans and advances to Customers
Extended by:Defunct RDFC - - Defunct SBFC 9,459 - SME Bank Limited 262,100 369,235
271,559 369,235 Employees 5,660 4,707 Financial Institution - SME Leasing Limited - a subsidiary company 13,022 17,192
290,241 391,134 On investments in
Available for sale securities 288,864 283,537 Held to maturity securities 2,604 4,388
291,468 287,925 On deposits with financial institutions 114 176 On securities purchased under resale agreements 252 1,157 On clean lending 29,691 17,156 On call money lending 3,304 7,719
615,070 705,267
24. MARK-UP/ RETURN/ INTEREST EXPENSEDOn deposits 277,140 285,020 On securities sold under repurchase agreements 161,067 145,056 On SBP Refinance Scheme 192 2,802 Brokerage and commission 2,486 3,005 Bank charges 319 397
441,204 436,280
25. GAIN ON SALE OF SECURITIES - NETFederal Government Securities
Market Treasury Bills 316 396 Pakistan Investment Bonds 30,382 32,140 Mutual Funds/Shares 2,035 -
32,733 32,536
26. OTHER INCOMEGain on sale of operating fixed assets 260 1,607 Fee on fund managed by the Bank- Equity Participation Fund (EPF) 1,134 1,152 Others 125 222
1,519 2,981
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
80
2016 201527. ADMINISTRATIVE EXPENSES Note
Salaries and allowances, etc. 461,107 395,516 Charge for defined benefit plans
- pension fund and gratuity 33.1.4 50,365 40,273 - unfunded gratuity scheme 33.2.4 11,895 10,488 - unfunded compensated absences 6,879 10,254
Contribution to defined contribution plan-benevolent fund 33.4.3 - 1,913 Non-executive directors' fees, allowances and other expenses 1,311 1,406 Rent, taxes, insurance, electricity, etc. 82,220 75,050 Legal and professional charges 18,191 13,993 Communications 6,047 5,739 Repairs and maintenance 28,368 23,577 Finance charges on leased assets - - Stationery and printing 4,634 4,102 Advertisement and publicity 929 800 Auditors' remuneration 27.1 900 1,100 Depreciation 12.3 30,398 28,010 Amortization 12.4 710 733 Donations - - Recruitment expenses 91 176 Travel and transport 5,778 3,127 Vehicle running and maintenance expenses 6,044 6,393 Entertainment 3,021 2,793 Training 291 422 Books, subscription and newspapers 2,840 2,575 Other expenses 27.2 18,313 16,810
740,332 645,250
27.1 Auditors' remunerationAudit fee 800 900 Special certifications, half yearly review and audit of consolidated financial statements 100 200
900 1,100
27.2
2016 201528. OTHER CHARGES
Penalties imposed by the State Bank of Pakistan - 826
Rupees in '000
This includes security charges of Rs. 15.53 million (2015: Rs. 13.08 million) and NIFT charges of Rs. 1.33 million(2015: Rs. 1.51 million).
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
81
2016 201529. TAXATION Note
Current 29.2 6,654 7,587 Prior years - - Deferred (264,230) -
(257,576) 7,587
29.1 Relationship between tax expense and accounting lossLoss before tax (456,818) (274,570)
Applicable tax rate 35% 35%
2016 2015
Tax on loss (159,886) (96,100) Deferred tax asset recognised during the year (264,230) - Tax effect of income taxed at lower rate 332 339 Minimum tax 6,322 7,248 Tax credit for prior years - - Other permanent differences 159,886 80,926
(257,576) 7,587
29.2
2016 201530. BASIC/ DILUTED LOSS PER SHARE Note
Net loss after tax for the year (199,242) (282,157)
Weighted average number of ordinary shares 239,250,700 239,250,700
Basic/diluted loss per share (0.83) (1.18)
2016 201531. CASH AND CASH EQUIVALENTS Note
Cash and balances with treasury banks 560,802 390,011 Balances with other banks 4,226 1,739 Call money lendings - 400,000
565,028 791,750
2016 201532. STAFF STRENGTH
Permanent 180 183Temporary/on contractual basis 197 201Bank's own staff strength at the end of the year 377 384Outsourced 113 111Total staff strength at the end of the year 490 495Average number of employees during the year 493 479
Rupees in '000
Rupees in '000
Rupees in '000
Provision for current year expenses is charged on minimum tax rate of 1% of turnover due to tax losses of theBank for the year ended December 31, 2016.
Number of persons
Rupees
Number of shares
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
82
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
33. EMPLOYEE BENEFIT PLANS33.1 Defined benefit pension and gratuity
33.1.1 General description
The scheme entitles the members to:-
-
33.1.2 The amounts recognised in the balance sheet for defined benefit pension and gratuity are as follows:2016 2015
Present value of defined benefit obligation 1,017,166 834,743 Fair value of plan assets (805,739) (719,350) Receivable from the fund - (3,010) Deficit 211,427 112,383
33.1.3 Movement in net liability recognised in the balance sheetOpening balance 112,383 79,907 Expense for the year 50,365 40,273 Other comprehensive income 87,102 31,846 Contribution to the fund (41,433) (36,633) Adjusted against contribution/Receivable from the fund 3,010 (3,010) Closing balance 211,427 112,383
33.1.4 The amounts recognised in the profit and loss account are as follows:Current service cost 41,844 33,344 Net interest 8,521 6,929 Expense for the year 50,365 40,273
The expense has been recognized in administrative expenses in profit and loss account.33.1.5 Actual return on plan assets 55,977 65,570
2016 201533.1.6 Changes in present value of defined benefit obligation
Present value of obligation 834,743 721,255 Current service cost 41,844 33,344 Interest cost 74,631 79,780 Benefits paid (existing pensioners) (11,021) (24,201) Actuarial loss 76,969 24,565 Present value of obligation at the end of the year 1,017,166 834,743
33.1.7 Changes in fair value of plan assetsFair value of opening plan assets 719,350 641,348 Expected return on plan assets 66,110 72,851 Contributions 41,433 36,633 Benefits paid (11,021) (24,201) Actuarial (loss) (10,133) (7,281) Fair value of closing plan assets 805,739 719,350
The Bank operates an approved defined benefit pension and gratuity scheme for all its eligible employees. Contributionsare made in accordance with the actuarial recommendations.
Gratuity payable to members who have completed a minimum of 5 years of service and total service on retirement orcessation of service or death is less than 10 years.Pension payable to members who have completed a minimum of 10 years of service with the Bank on retirement atage of sixty years or on completion of 25 years of service with the Bank or on permanent disability or on death duringservice.
Rupees in '000
The expected return on plan assets is based on the market expectations and depends upon the asset portfolio of the fundat the beginning of the period, for returns over the entire life of the related obligation.
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
83
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
33.1.8 Break-up of category of assetsRs. in '000 % age Rs. in '000 % age
Pakistan Investment Bonds (PIBs) - 0% 184,130 26%Term Deposits Receipts (TDRs) 794,384 99% 535,194 74%Bank deposit accounts 11,355 1% 26 0%
805,739 100% 719,350 100%
33.1.9 Principal actuarial assumptions
2016 2015
Valuation discount rate - per annum 9.50% 9.00%Expected return on plan assets - per annum 9.50% 9.00%Salaries increase rate - per annum 7.50% 7.00%Pension indexation rate 5.50% 5.00%
Mortality rate33.1.10 Disclosure for current and previous four annual years
2016 2015 2014 2013 2012
Present value of obligation 1,017,166 834,743 721,255 617,807 629,749 Fair value of plan assets (805,739) (719,350) (641,348) (539,194) (442,793) Deficit 211,427 115,393 79,907 78,613 186,956
Experience adjustments on plan liabilities-(gain)/loss 76,969 24,565 (363) (119,517) 78,268
Experience adjustments on plan assets-(loss)/gain (10,133) (7,281) (2,814) (8,331) (5,724)
33.1.11 Sensitivity analysis
AssumptionsDiscount rate 1% (125,286) 154,971 Salary rate 1% 77,901 (70,884) Withdrawal rate 10% 123 (127) Mortality age 1 year 1,125 (1,015)
33.1.12 Risks Associated with Defined Benefit PlansInvestment Risks:
Longevity Risks:
Sensitivity analysis is performed by changing only one assumption at a time while keeping the other assumptions constant.Sensitivity analysis of discount rate and salary increase rate is presented in the below tables:
Rupees in '000
The risk arises when the actual performance of the investments is lower than expectation and thus creating a shortfall inthe funding objectives.
SLIC2001-2005
Rupees in '000
Impact on defined benefit obligation
SLIC2001-2005
Change in assumption
Increase in assumption
Decrease in assumption
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level overthe entire retiree population.
Actuarial valuation is carried out annually. Latest actuarial valuation was carried out as at December 31, 2016 usingProjected Unit Credit Method. Significant actuarial assumptions used are as follows:
2016 2015
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
84
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
Salary Increase Risk:
Withdrawal Risk:
33.1.13
33.1.14 Maturity Profile 2016 2015
The weighted average duration of the obligation (in years) 13.07 13.1
33.2 Defined benefit- unfunded gratuity scheme33.2.1 General description
2016 201533.2.2 The amounts recognised in the balance sheet are as follows:
Present value of defined benefit obligation 67,626 53,821
33.2.3 Movement in net liability recognised in the balance sheetOpening balance of liability 53,821 44,711 Expense for the year 11,895 10,488 Other comprehensive income 10,317 9,533 Benefits paid during the year (8,407) (10,911)Closing balance of net liability 67,626 53,821
33.2.4 The amounts recognised in the profit and loss account are as follows:Current service cost 6,809 6,072 Interest 5,086 4,416
11,895 10,488
The expense has been recognized in administrative expenses in profit and loss account.
33.2.5 Movement in payable to defined benefit unfunded gratuity schemePresent value of obligation at the beginning of the year 53,821 44,711 Current service cost 6,809 6,072 Interest cost 5,086 4,416 Benefits paid (8,407) (10,911)Actuarial loss 10,317 9,533 Present value of obligation at the end of the year 67,626 53,821
33.2.6 Significant actuarial assumptions are as follows: 2016 2015
Discount factor - per annum 9.50% 10.25%Salary increase rate - per annum (short term - 1 year) 7.50% 5.50%Salary increase rate - per annum (long term) 7.50% 8.25%
Mortality rate
The expected pension expense for the next financial year works out to Rs. 67.704 million (2015: Rs. 41.374 million).
SLIC2001-2005
SLIC2001-2005
The Bank operates a defined benefit unfunded gratuity scheme for all eligible employees.
The risk of actual withdrawals varying with the actuarial assumptions.
The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when theactual increases are higher than expectation and impacts the liability accordingly.
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
85
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
33.2.7 Disclosure for current and previous four annual periods
2016 2015 2014 2013 2012
Present value of obligation 67,626 53,821 44,711 46,906 41,654 Experience adjustments on plan liabilities loss/(gain) 10,317 9,533 (10,275) 2,497 1,511
33.2.8 Sensitivity analysis
AssumptionsDiscount rate 1% (6,776) 7,981 Salary rate 1% 8,373 (7,195) Withdrawal rate 10% 43 (44) Mortality age 1 Year (63) 61
33.2.9 Maturity ProfileUndiscounted
Particulars Rupees in '000Year 1 7,861 Year 2 823 Year 3 958 Year 4 6,976 Year 5 961 Year 6 to Year 10 22,815 Year 11 and above 208,491
33.2.10 Risks Associated with Defined Benefit PlansLongevity Risks:
Salary Increase Risk:
Withdrawal Risk:
33.2.11 The expected gratuity expense for the next financial year works out to Rs. 12.937 million (2015: Rs. 11.218 million).
33.2.12 Maturity Profile 2016 2015The weighted average duration of the obligation (in years) 13.07 13.1
33.3 Unfunded compensated absences33.3.1 General description
Change in assumption
Increase in assumption
Decrease in assumption
The Bank provides compensated absences, an unfunded scheme, as per entitlement to all its permanent and contractualemployees.
Rupees in '000
Impact on defined benefit obligation
The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. Themovement of the liability can go either way
Sensitivity analysis is performed by changing only one assumption at a time while keeping the other assumptions constant.Sensitivity analysis of discount rate and salary increase rate is presented in the below tables:
Rupees in '000
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level overthe entire retiree population;
The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when theactual increases are higher than expectation and impacts the liability accordingly;
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
86
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
33.3.2 Principal actuarial assumptions
2016 2015
Discount factor - per annum 9.50% 9.00%Salaries increase rate - per annum 7.50% 7.00%Mortality rate
2016 201533.3.3 The amounts recognised in the balance sheet are as follows:
Present value of defined benefit obligation 72,245 77,399
33.3.4 Movement in liability recognized in the balance sheetBalance at beginning of the year 77,399 79,075 Expense/ for the year 6,879 10,254 Other comprehensive income (2,162) - Benefits paid during the year (9,871) (11,930) Closing net liability 72,245 77,399
33.3.5 Sensitivity analysis
AssumptionsDiscount rate 1% (4,336) 4,807 Salary rate 1% 5,155 (4,711)
33.3.6 Risks Associated with Defined Benefit PlansLongevity Risks:
Salary Increase Risk:
Withdrawal Risk:
33.3.7
33.3.8 Maturity Profile 2016 2015
The weighted average duration of the obligation (in years) 13.07 13.1
Rupees in '000
The expected compensated absences expense for the next financial year works out to Rs. 7.230 million (2015: Rs. 7.323million).
Sensitivity analysis is performed by changing only one assumption at a time while keeping the other assumptions constant.Sensitivity analysis of discount rate and salary increase rate is presented in the below tables:
Change in assumption
Increase in assumption
Decrease in assumption
Rupees in '000
SLIC2001-2005
SLIC2001-2005
Actuarial valuation was carried out as at December 31, 2016 using Projected Unit Credit Method. Significant actuarialassumptions used were as follows:
Impact on defined benefit obligation
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level overthe entire retiree population.
The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when theactual increases are higher than expectation and impacts the liability accordingly.
The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. Themovement of the liability can go either way.
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
87
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
33.4 Benevolent fund33.4.1 General description
33.4.213,712 2,876 16,588 12,927 3,343 16,270
22 60 82 38 74 112 Total actuarial liability 13,734 2,936 16,670 12,965 3,417 16,382 Fair value of plan assets (14,081) (4,247) (18,328) (12,736) (3,957) (16,693) Funding surplus (347) (1,311) (1,658) 229 (540) (311) Receivable from fund - - - (10) - (10)
(347) (1,311) (1,658) 219 (540) (321)
Current service cost 223 66 289 210 77 287 Net interest (31) (118) (149) (21) (49) (70)
192 (52) 140 189 28 217
33.4.3
(Income)/expense for the year (232) (688) (920) 1,313 600 1,913 Funding surplus - - - - - -
(232) (688) (920) 1,313 600 1,913
33.4.4 Break-up of category of assets Rs. in '000 % age Rs. in '000 % age
Pakistan Investment Bonds (PIBs) - 0% 9,277 56%Term Deposits Receipts (TDRs) 18,164 99% 7,315 43%Bank deposit accounts 164 1% 101 1%
18,328 100% 16,693 100%
33.4.5 Maturity Profile 2016 2015The weighted average duration of the obligation (in years) 13.07 13.1
Actuarial liability for active employeesActuarial liability for beneficiaries
Asset recognized in balance sheet
Staff Benevolent
Fund Total Total
The Bank also operates a contributory benevolent fund for all its eligible employees (defined benefit scheme).Contributions to this fund were made equally by the Bank and employees till March 2002. Thereafter it is whollycontributed by the Bank at the rate of 2% of basic salary with a ceiling of Rs. 200 per month per employee. Annualcontribution towards the defined benefit scheme are made on the basis of actuarial advice using the Projected Unit CreditMethod.
2016 2015 Officers
Benevolent Fund
Officers Benevolent
Fund
Staff Benevolent
Fund
The amount recognized inthe profit and loss accountis as follows:
Rupees in '000 Rupees in '000
2016 2015
Expected benevolent expense/(income) for the next one year commencing 01 Jan, 2017
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
88
34. COMPENSATION OF DIRECTORS AND EXECUTIVES
2016 2015 2016 2015 2016 2015
Fees - - 970 1,000 - - Managerial remuneration 7,682 6,983 - - 189,261 154,228 Charge for defined benefit plan 2,462 1,527 - - 37,870 36,671 Rent and house maintenance 4,225 3,841 - - 62,830 48,774 Utilities 768 698 - - 18,668 15,222 Medical 1,152 1,047 - - 24,047 18,843 Conveyance - 52 - - 7,678 8,407 Leave fare assistance 1,231 1,119 - - 12,785 6,951 Others 6,469 3,026 341 406 47,297 35,424
23,989 18,293 1,311 1,406 400,436 324,520 Number of persons 1 1 4 4 211 188
34.1
Directors Executives
Rupees in '000
Executives mean employees, other than the chief executive and directors, whose basic salary exceeds five hundred thousandrupees in a financial year. The remuneration of directors has been fixed in accordance with the Article of Association whichinclude Rs. 25,000 and Rs. 15,000 for attending board meetings and meetings of committee of board respectively.
President/CEO
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
89
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
1635
FAIR
VAL
UE
OF
FIN
ANCI
AL IN
STR
UM
EN
TS
35.1
On
bala
nce
shee
t fin
anci
al in
stru
men
ts
Fina
ncial
ass
ets m
easu
red
at fa
ir va
lue
- Inv
estm
ents
Gov
ernm
ent S
ecur
ities
(T b
ills a
nd P
IBs)
4,65
8,64
6
-
-
-
-
-
4,65
8,64
6
-
4,67
4,28
8
-
-
4,67
4,28
8
Ord
inar
y sh
ares
of l
isted
com
pani
es58
2
-
-
-
-
-
58
2
5,
312
-
-
-
5,
312
O
rdin
ary
shar
es o
f unl
isted
com
pani
es26
,440
26,4
40
-
-
-
26
,440
26,4
40
Fina
ncial
ass
ets n
ot m
easu
red
at fa
ir va
lue
- Ban
k ba
lance
s with
trea
sury
ban
ks35
.2-
-
-
-
488,
808
-
488,
808
-
-
-
488,
808
488,
808
- Bala
nces
with
oth
er b
anks
35.2
-
-
-
-
4,
226
-
4,22
6
-
-
-
4,22
6
4,22
6
- Len
ding
to fi
nanc
ial in
stitu
tions
35.2
-
-
-
44
5,00
0
-
-
44
5,00
0
-
-
-
44
5,00
0
44
5,00
0
- A
dvan
ces
35.2
-
-
-
2,
771,
720
-
-
2,
771,
720
-
-
-
2,
771,
720
2,
771,
720
- O
ther
ass
ets
35.2
-
-
-
-
15
2,24
7
-
15
2,24
7
-
-
-
15
2,24
7
15
2,24
7
-O
ther
Inve
stm
ent (
COI/
TDR)
35.2
-
35
,000
35,0
00
35
,000
35,0
00
- S
ubsid
iary
SME
Lea
sing
Lim
ited
128,
495
-
-
-
-
-
128,
495
-
-
-
128,
495
128,
495
Fina
ncial
liab
ilitie
s not
mea
sure
d at
fair
valu
e- B
ills P
ayab
le-
-
-
-
-
95
,443
95,4
43
-
-
-
95
,443
95,4
43
- B
orro
win
gs-
-
-
-
-
3,
460,
326
3,
460,
326
-
-
-
3,
460,
326
3,
460,
326
- D
epos
its-
-
-
-
-
5,
228,
716
5,
228,
716
-
-
-
5,
228,
716
5,
228,
716
- O
ther
Liab
ilitie
s-
-
-
-
-
20
0,93
9
20
0,93
9
-
-
-
20
0,93
9
20
0,93
9
Inth
eop
inio
nof
the
man
agem
ent,
the
fair
valu
eof
the
rem
ainin
gfin
ancia
lass
etsa
ndlia
bilit
iesar
eno
tsig
nific
antly
diffe
rent
from
their
carr
ying
valu
es.S
ince
thes
ear
eeit
hers
hort
term
inna
ture
or,i
nth
eca
se o
f dep
osits
, are
freq
uent
ly pr
e-pr
iced.
Rup
ees i
n '0
00R
upee
s in
'000
Oth
er
finan
cial
lia
bilit
ies
Tot
al
The
fair
valu
eof
quot
edse
curit
iesot
hert
han
thos
ecla
ssifi
edas
held
tom
atur
ity,i
sbas
edon
quot
edm
arke
tpric
e.Q
uote
dse
curit
iescla
ssifi
edas
held
tom
atur
ityas
carr
iedat
cost
.Th
efa
irva
lue
ofun
quot
edeq
uity
secu
rities
, oth
er th
an in
vest
men
t in
asso
ciate
s and
subs
idiar
ies, i
s det
erm
ined
on
the
basis
of t
he b
reak
-up
valu
e of
thes
e in
vest
men
ts a
s per
their
late
st a
vaila
ble
audi
ted
finan
cial s
tate
men
ts.
The
fair
valu
e of
unq
uote
d de
bt se
curit
ies, f
ixed
term
loan
s, ot
her a
sset
s, ot
her l
iabili
ties,
fixed
term
dep
osits
and
bor
row
ings
can
not
be
calcu
lated
with
suffi
cient
relai
bilit
y du
e to
the
abse
nce
of c
urre
nt a
nd
activ
e m
arke
t for
thes
e as
sets
and
liab
ilitie
s and
relia
ble
data
rega
rdin
g m
arke
t rat
es fo
r sim
ilar i
nstru
men
ts.
Avai
labl
e fo
r sal
eH
eld
to
mat
urity
Hel
d fo
r tra
ding
BOO
K VA
LUE
FAIR
VAL
UE
2016
2016
Leve
l 2Le
vel 3
Se
curit
ies
not a
t fai
r va
lue
Tot
alN
ote
Loan
s and
re
ceiv
able
s
Oth
er
finan
cial
as
sets
Leve
l 1
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
90
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
16
On
bala
nce
shee
t fin
anci
al in
stru
men
ts (c
ontin
ued)
Fina
ncial
ass
ets m
easu
red
at fa
ir va
lue
- Inv
estm
ents
Gov
ernm
ent S
ecur
ities
(T b
ills a
nd P
IBs)
3,90
3,65
1
-
-
-
-
-
3,90
3,65
1
-
3,95
1,97
3
-
-
3,95
1,97
3
Ord
inar
y sh
ares
of l
isted
com
pani
es2,
008
-
-
-
-
-
2,
008
7,
175
-
-
-
7,
175
O
rdin
ary
shar
es o
f unl
isted
com
pani
es26
,440
-
-
-
-
-
26,4
40
-
-
-
26
,440
26,4
40
Fina
ncial
ass
ets n
ot m
easu
red
at fa
ir va
lue
- Ban
k ba
lance
s with
trea
sury
ban
ks-
-
-
-
313,
418
-
313,
418
-
-
-
313,
418
313,
418
- Bala
nces
with
oth
er b
anks
-
-
-
-
1,
739
-
1,73
9
-
-
-
1,73
9
1,73
9
- Len
ding
to fi
nanc
ial in
stitu
tions
-
-
-
88
5,00
0
-
-
88
5,00
0
-
-
-
88
5,00
0
88
5,00
0
- A
dvan
ces
-
-
-
2,
751,
710
-
-
2,
751,
710
-
-
-
2,
751,
710
2,
751,
710
- O
ther
ass
ets
-
-
-
-
14
8,94
0
-
14
8,94
0
-
-
-
14
8,94
0
14
8,94
0
-O
ther
Inve
stm
ent (
COI/
TDR)
-
61
,687
-
-
-
-
61,6
87
-
-
-
61
,687
61,6
87
- S
ubsid
iary
SME
Lea
sing
Lim
ited
70,2
16
-
-
-
-
-
70
,216
-
-
-
70,2
16
70
,216
Fina
ncial
liab
ilitie
s not
mea
sure
d at
fair
valu
e- B
ills P
ayab
le-
-
-
-
-
11
4,10
7
11
4,10
7
-
-
-
11
4,10
7
11
4,10
7
- B
orro
win
gs-
-
-
-
-
2,
888,
685
2,
888,
685
-
-
-
2,
888,
685
2,
888,
685
- D
epos
its-
-
-
-
-
4,
770,
201
4,
770,
201
-
-
-
4,
770,
201
4,
770,
201
- O
ther
Liab
ilitie
s-
-
-
-
-
21
7,99
6
21
7,99
6
-
-
-
21
7,99
6
21
7,99
6
On
Bala
nce
shee
t fin
anci
al in
stru
men
tsTh
e Ba
nk m
easu
res f
air v
alues
usin
g th
e fo
llow
ing
fair
valu
es h
eirar
chy
that
refle
cts t
he si
gnifi
canc
e of
the
inpu
ts u
sed
in m
akin
g th
e m
easu
rem
ents
.Le
vel 1
: Fair
valu
e m
easu
rem
ent u
sing
quot
ed p
rices
(una
djus
ted)
in a
ctiv
e m
arke
ts fo
r ide
ntica
l ass
ets a
nd li
abili
ties.
Leve
l 2: F
air v
alue
mea
sure
men
ts u
sing
inpu
ts o
ther
than
quo
ted
price
s inc
lude
d w
ithin
leve
l 1 th
at a
re o
bser
vabl
e fo
r ass
et o
r liab
ility
, eith
er d
irect
ly (i.
e. as
pric
es) o
r ind
irect
ly (i.
e. de
rived
from
pric
es).
Leve
l 3: F
air v
alue
mea
sure
men
ts u
sing
inpu
ts fo
r the
ass
ets a
nd li
abili
ties t
hat a
re n
ot b
ased
on
obse
rvab
le m
arke
t dat
a (i.
e. un
obse
rvab
le in
puts
).35
.2
35.3
35.4
Curr
ently
no
finan
cial i
nstru
men
ts a
re c
lassif
ied in
leve
l 3.
2015
2015
BOO
K V
ALU
EFA
IR V
ALU
E
Not
eA
vaila
ble
for s
aleH
eld to
m
atur
ityH
eld fo
r tra
ding
Loan
s and
re
ceiv
ables
The
Bank
'spo
licy
isto
reco
gnise
trans
feri
nto
and
outo
fthe
diffe
rent
fair
valu
ehe
irarc
hylev
elsat
the
date
,the
even
torc
hang
ein
circu
mst
ance
s,th
atca
used
the
trans
fero
ccur
red.
Ther
ew
ere
notra
nsfe
rsbe
twee
n lev
el 1
and
level
2 du
ring
the
year
.
The
Bank
hasn
otdi
sclo
sed
the
fair
valu
efo
rthe
sefin
ancia
lass
etsa
ndlia
bilit
ies,a
sthe
sear
efo
rsho
rtte
rman
dor
re-p
riced
over
shor
tter
m.T
here
fore
their
carr
ying
amou
ntsa
rere
ason
able
appr
oxim
atio
nof
fair
valu
e.
Leve
l 3
Secu
rities
no
t at f
air
valu
eTo
tal
Rupe
es in
'000
Rupe
es in
'000
Oth
er
finan
cial
asse
ts
Oth
er
finan
cial
liabi
lities
Tota
lLe
vel 1
Leve
l 2Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
91
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES The segment analysis with respect to business activity is as follows:
Total income 357,951 304,389 662,340 Total expenses 266,775 852,383 1,119,158 Net income/(loss) before tax 91,176 (547,994) (456,818) Segment assets (gross) 6,155,049 8,738,212 14,893,261 Segment non performing loans - 5,418,812 5,418,812 Segment provision required 137,226 5,377,820 5,515,046 Segment liabilities 3,721,130 5,636,437 9,357,567 Segment return on net assets (ROA) (%) 1.52% -16.31%Segment cost of funds (%) 7.17% 15.12%
Total income 347,906 405,295 753,201 Total expenses 303,364 724,407 1,027,771 Net income/(loss) before tax 44,542 (319,112) (274,570) Segment assets (gross) 5,604,507 8,598,534 14,203,041 Segment non performing loans - 5,517,582 5,517,582 Segment provision required 207,443 5,379,072 5,586,515 Segment liabilities 3,044,025 5,216,185 8,260,210 Segment return on net assets (ROA) (%) 0.83% -9.91%Segment cost of funds (%) 9.97% 13.89%
Assumptions used:-
- Unallocatable liabilities representing 5.59% (2015: 5.18%) of the total liabilities have been allocated tosegments based on their respective incomes.
Rupees in '000
Unallocatable assets representing 2.57% (2015: 0.81%) of the total assets have been allocated tosegments based on their respective incomes.
Commercial Banking
Trading & Sales
Total
2016
2015
Trading & SalesCommercial
BankingTotal
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
92
SME
BAN
K LI
MIT
ED
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
1637
.R
ELA
TE
D P
ART
Y T
RAN
SACT
ION
STh
e Ba
nk h
as re
lated
par
ty re
latio
nshi
p w
ith it
s majo
rity
shar
ehol
der (
Gov
ernm
ent o
f Pak
istan
) sub
sidiar
y, di
rect
ors,
key
man
agem
ent p
erso
nnel
and
staf
f ret
irem
ent b
enef
it pl
an.
37.1
Det
ails o
f tra
nsac
tions
with
relat
ed p
artie
s dur
ing
the
year
, oth
er th
an th
ose
whi
ch h
ave
been
disc
lose
d els
ewhe
re in
thes
e un
cons
olid
ated
fina
ncial
stat
emen
ts, a
re a
s fol
low
s:
Bala
nces
out
stan
ding
as a
t-
Inve
stm
ent i
n su
bsid
iary
215,
457
-
-
-
-
-
215,
457
-
-
-
-
-
-A
dvan
ces
126,
580
15,8
40
14
6,53
6
-
-
-
126,
846
12,7
18
13
5,53
6
-
-
-
-
Rece
ivab
les/m
arku
p99
4
7,
364
47
,834
2,
561
1,6
58
-
1,
194
6,
381
46,3
30
1,35
4
32
1
-
-
Dep
osits
1,741
7,
048
63
,979
38
0,09
4
-
94,9
59
1,44
9
13,3
17
10
0,48
0
36
5,75
7
-
84,4
05
-Pa
yabl
es/m
arku
p-
36
35
6
1,211
35
1,298
596
-
30
63
6
1,
398
243,
603
633
Tra
nsac
tions
dur
ing
the
year
end
ed
-N
et m
ark-
up/i
nter
est e
arne
d13
,022
43
5
5,
225
-
-
-
17
,192
377
4,
330
-
-
-
-
Net
mar
k-up
/int
eres
t exp
ense
d-
623
4,36
2
14
,624
-
6,79
5
-
264
4,
657
16
,156
-
4,
356
-
Tota
l deb
it in
runn
ing
finan
ce10
8,94
9
-
-
-
-
-
57
,805
-
-
-
-
-
-To
tal c
redi
ts in
runn
ing
finan
ce10
9,21
5
-
-
-
-
-
86
,003
-
-
-
-
-
-Pa
ymen
ts m
ade
on b
ehalf
of
564
-
-
73
-
-
595
-
-
158
-
-
-
Paym
ents
rece
ived
from
564
-
-
-
-
-
595
-
-
-
-
-
-Re
mun
erat
ion
and
allow
ance
s-
58,2
11
38
1,369
-
-
-
-
42,1
69
33
6,41
8
-
-
-
-
-
-
-
-
60
,138
-
-
-
-
-
59,9
03
-
-Ch
arge
for t
he y
ear r
elatin
g to
e
mpl
oyee
s ben
efit
plan
s-
-
-
-
68,2
19
-
-
-
-
-
62
,928
-
-
Fee
and
com
miss
ion
inco
me
-
-
-
1,134
-
-
-
-
-
1,15
2
-
-
Prin
cipa
l ter
ms o
f loa
n fa
cilit
y to
SM
EL
Amou
nt (R
s. in
000
) 1
50,0
00
Cont
ribut
ion
to e
mpl
oyee
s ben
efit
plan
s
Equ
ity
Parti
cipat
ion
Fund
Em
ploy
ees
bene
fit
plan
s
Em
ploy
ees
Prov
iden
t Tr
ust
Rup
ees i
n '0
00Ru
pees
in '0
00
Em
ploy
ees
Prov
iden
t T
rust
Key
Man
agem
ent
Pers
onne
l
Oth
er
Em
ploy
ees
Equ
ity
Parti
cipa
tion
Fund
Oth
er
Em
ploy
ees
Subs
idiar
y SM
EL
Key
M
anag
emen
t Pe
rson
nel
Bank
ing
trans
actio
nsw
ithre
lated
parti
esar
eca
rried
outi
nth
eno
rmal
cour
seof
busin
ess
atag
reed
term
s.Co
ntrib
utio
nto
and
accr
uals
inre
spec
tofs
taff
retir
emen
tben
efit
plan
are
mad
ein
acco
rdan
cew
ithac
tuar
ialva
luat
ions
(refe
rno
te33
toth
ese
unco
nsol
idat
edfin
ancia
lsta
tem
ents
for
the
deta
ilsof
plan
).Re
mun
erat
ion
toth
eex
ecut
ives
disc
lose
din
note
34to
thes
eun
cons
olid
ated
finan
cials
tate
men
tsar
ede
term
ined
inac
cord
ance
with
term
s of t
heir
appo
intm
ents
.
2016
2015
Subs
idia
ry
SME
L
Em
ploy
ees
bene
fit
plan
s
1
year
Kib
or +
3.5
0%T
erm
Runn
ing
finan
ce fa
cility
(rev
iewab
le an
nuall
y)In
tere
st ra
te
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
93
SME BANK LIMITEDNOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201638. CAPITAL ADEQUACY
2016 2015Regulatory capital baseTier I capital
Shareholders capital/assigned capital 2,392,507 2,392,507 Reserves 206,526 206,526 Unappropriated/unremitted profits (net of losses) (2,590,705) (2,296,206)
8,328 302,827 Less: Adjustments
Goodwill/intangible Assets 718 1,281 Investment in equity of subsidiary 128,495 70,216 Deficit on revaluation of available for sale investments - -
129,213 71,497 Total tier I capital (120,885) 231,330
Tier II capital 12,391 8,174 Eligible tier III capital - - Total regulatory capital (a) (108,494) 239,504
Risk-weighted exposures Book Value Risk Adjusted Book Value Risk Adjusted
Value ValueCredit riskBalance sheet items:
Cash and other liquid assets 565,028 845 391,750 348 Investments/lending to financial institutions 5,314,535 511,752 5,002,491 660,302 Loans and advances 2,771,720 1,668,549 2,751,710 1,632,168 Fixed assets 101,859 101,859 120,283 120,283 Deferred tax assets 256,177 256,177 - - Other assets 368,896 316,647 350,292 292,670
9,378,215 2,855,829 8,616,526 2,705,771 Off balance sheet itemsWeighted Non-funded exposures 132,538 66,269 167,605 83,803
132,538 66,269 167,605 83,803
Credit risk-weighted exposures (b) 9,510,753 2,922,098 8,784,131 2,789,574
Market risk 1,022,592 737,793 Market risk-weighted exposures - 1,022,592 - 737,793
Total risk-weighted exposures (c) 3,944,690 3,527,367 Capital adequacy ratio credit risk [ (a) / (b) x 100 ] -3.71% 8.59%Total Capital adequacy ratio [ (a) / (c) x 100 ] -2.75% 6.79%
The risk weighted assets to capital ratio, calculated in accordance with the State Bank's guidelines on capital adequacy is asfollows:
2016 2015
State Bank of Pakistan (SBP) has granted exemption to the Bank vide letter No. BSD/SU-21/220/1624/2007 dated June 08,2007 from computing capital adequacy ratio under BASEL II till restructuring/privatization and has granted exemption fromimplementation of Basel III Capital Instructions till restructuring/privatization vide SBP letter #BPRD/BA&CPD/646/000886/16 dated January 12, 2016. Accordingly, the Bank computes capital adequacy ratio underBASEL I and SBP has allowed exemption in meeting the minimum CAR requirements of 10% till June 30, 2017 orcompletion of restructuring/privatization of the Bank, whichever is earlier vide SBP letter No.BPRD/BA&CPD/646/1066/2017 dated January 13, 2017.
Rupees in '000
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
94
SME BANK LIMITEDNOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
39. RISK MANAGEMENT39.1 Credit risk
39.1.1 Segment by class of business
Rs. in '000 % age Rs. in '000 % age Rs. in '000 % ageChemical and pharmaceuticals 171,398 2.1% 1,439 0.0% - -Agriculture, forestry, hunting and fishing 247,941 3.1% - - - -Mining & quarrying 9,053 0.1% - - - -Textile 438,029 5.5% 87,270 1.7% - -Cement 20,268 0.3% 100,000 1.9% - -
70,656 0.9% 787 0.0% - -Automobile & transportation equipment 67,225 0.8% 567 0.0% - -Financial 126,580 1.6% 730,097 14.0% 3,454,878 71.3%Insurance - - 2,983 0.1% - -Electronics & electrical appliances 39,166 0.5% 1,145 0.0% - -
353,596 4.4% - - - -Power (electricity), gas, water and sanitary 91,816 1.1% 1,653 0.0% - -Wholesale and trade 1,936,293 24.1% - - - -Transport, storage, and communication 48,293 0.6% - - - -Individuals 1,655,802 20.6% 2,159,978 41.3% 277,385 5.7%Services 317,849 4.0% - - 10,000 0.2%Government - - - - 983,832 20.3%Others 2,434,747 30.3% 2,142,797 41.0% 120,711 2.5%
8,028,712 100% 5,228,716 100% 4,846,806 100%
39.1.2 Segment by sectorPublic/Government - - 2,417,416 46% 983,832 20%Private 8,028,712 100% 2,811,300 54% 3,862,974 80%
8,028,712 100% 5,228,716 100% 4,846,806 100%
Construction
Footwear and leather garments
Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failed completelyto perform as contracted. The Bank is not exposed to major concentration of credit risk. Written procedures for credit andrisk management functions have been developed and implemented. Credit evaluation system comprise of well designedloan approval and review responsibilities and it is ensured that Bank's credit-granting activities conform to the establishedstrategy, prudential regulations and SBP instructions are strictly followed. To ensure that credit granting activities areadequately diversified, besides fixing limits on individual credit, it is ascertained that there is no concentration in aparticular industry or economic sector, geographical region and specific product. Special attention is placed on such non-performing loans and a Special Assets Management Division follows up and recovers all such loans. Recovery againstcertain specific non-performing loans has been outsourced to National Bank of Pakistan.
2016
Deposits Advances (Gross) Contingencies & Commitments
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
95
SME BANK LIMITEDNOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
Segment by class of business
Rs. in '000 % age Rs. in '000 % age Rs. in '000 % age
Chemical and pharmaceuticals 171,680 2.1% 105 0.0% - -Agriculture, forestry, hunting and fishing 248,968 3.1% - - - -Mining & quarrying 9,053 0.1% - - - -Textile 444,915 5.6% 76,646 1.6% - -Cement 20,268 0.3% - - - -
86,890 1.1% 2,804 0.1% - -Automobile & transportation equipment 81,786 1.0% 143 0.0% - -Financial 126,846 1.6% 717,209 15.0% 2,871,813 65.6%
- - 19 0.0% - -Electronics & electrical appliances 40,428 0.5% 1,003 0.0% - -
375,856 4.7% - - - -Power (electricity), gas, water and sanitary 61,609 0.8% 1,350 0.0% - -Wholesale and trade 1,941,230 24.2% - - - -Transport, storage, and communication 74,464 0.9% - - - -Individuals 1,644,950 20.5% 1,678,625 35.2% 391,523 9.0%Services 110,076 1.4% - - 15,000 0.3%Government - - - - 1,016,665 23.2%Others 2,572,863 32.1% 2,292,297 48.1% 81,729 1.9%
8,011,882 100% 4,770,201 100% 4,376,730 100%
Segment by sectorPublic/Government - - 2,471,992 52% 1,016,665 23%Private 8,011,882 100% 2,298,209 48% 3,360,065 77%
8,011,882 100% 4,770,201 100% 4,376,730 100%
Construction
Contingencies & Commitments
Insurance
2015
Advances (Gross) Deposits
Footwear and leather garments
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
96
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201639.1.3 Details of non-performing advances and specific provisions by class of business segment.
Specific Specific Provisions Provisions
Held Held
Chemical and pharmaceuticals 99,369 95,199 102,379 100,017 Agriculture, forestry, hunting and fishing 203,286 203,286 203,286 203,286 Mining & quarrying 9,053 9,053 9,053 9,053 Textile 364,613 356,223 366,196 355,325 Cement 20,268 20,268 20,268 20,268 Footwear and leather garments 59,801 58,988 78,174 59,388 Automobile and transportation equipment 16,311 9,054 17,404 8,553 Electronics and electrical appliances 13,561 12,119 15,551 13,494 Construction 70,501 67,882 71,037 67,183 Power (electricity), gas, water and sanitary 13,415 10,731 13,615 10,900 Wholesale and trade 1,356,714 1,325,011 1,399,520 1,345,897 Transport, storage and communication 654 654 654 654 Individuals 1,522,309 1,522,309 1,522,679 1,522,679 Services 72,332 36,985 7,590 6,630 Others 1,596,625 1,516,839 1,690,176 1,528,671
5,418,812 5,244,601 5,517,582 5,251,998
39.1.4 - -
Public/Government - - - - Private 5,418,812 5,244,601 5,517,582 5,251,998
5,418,812 5,244,601 5,517,582 5,251,998
Details of non-performing advances and specific provisions by sector
2016 2015
Classified Advances
Classified Advances
Rupees in '000
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
97
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
39.1.5 Geographical Segment Analysis
Pakistan (456,818) 9,378,215 20,648 4,846,806 Asia Pacific (including South Asia) - - - - Europe - - - - United States of America and Canada - - - - Middle East - - - - Others - - - -
(456,818) 9,378,215 20,648 4,846,806
Contingenciesand
commitments
Pakistan (274,570) 8,616,526 356,316 4,376,730 Asia Pacific (including South Asia) - - - - Europe - - - - United States of America and Canada - - - - Middle East - - - - Others - - - -
(274,570) 8,616,526 356,316 4,376,730
39.2 Market risk
Contingencies &
commitments
2016
Rupees in '000
Market risk is the risk that the value of on and off-balance sheet positions of the Bank will be adversely affected bymovements in interest rates, foreign exchange rates and equity prices resulting in a loss to earnings and capital. The Bank'sinterest rates exposure comprises those originating from investing and lending activities. The Asset and LiabilityCommittee of the Bank monitors and manages the interest rate risk with the objective of limiting the potential adverseeffect on the profitability of the Bank.
Net assets employed
Total assets employed
Rupees in '000
Loss before taxation
Loss before taxation
2015
Net assets employed
Total assets employees
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
98
NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
39.2.1 Foreign exchange riskPresently the Bank does not deal in foreign exchange.
Net foreigncurrencyexposure
Pakistan rupee 9,378,215 9,357,567 4,846,806 - United States dollar - - - - Great Britain pound - - - - Deutsche mark - - - - Japanese yen - - - - Euro - - - - Other currencies - - - -
9,378,215 9,357,567 4,846,806 -
Net foreigncurrencyexposure
Pakistan rupee 8,616,526 8,260,210 4,376,730 - United States dollar - - - - Great Britain pound - - - - Deutsche mark - - - - Japanese yen - - - - Euro - - - - Other currencies - - - -
8,616,526 8,260,210 4,376,730 -
39.2.2 Equity position risk
Rupees in '000
Rupees in '000
The Bank's exposure in equity market is classified in available for sale category with the intent to earn profit based onfundamentals.
Assets Off-balance sheet items
2016
2015
Assets Liabilities Off-balance sheet items
Liabilities
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
99
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
1639
.2.3
Mis
mat
ch o
f int
eres
t rat
e se
nsiti
ve a
sset
s and
liab
ilitie
s
Effe
ctiv
eN
on-in
tere
st
Yiel
d/be
arin
gIn
tere
stT
otal
finan
cial
rate
inst
rum
ents
On-
bala
nce
shee
t fin
anci
al in
stru
men
tsAs
sets
Cash
and
bala
nces
with
trea
sury
ban
ks56
0,80
2
-
-
-
-
-
-
-
-
-
560,
802
Balan
ces w
ith o
ther
ban
ks2.
14%
4,22
6
2,15
3
511
350
146
163
-
31
390
-
482
Lend
ing
to fi
nanc
ial in
stitu
tions
6.61
%44
5,00
0
445,
000
-
-
-
-
-
-
-
-
-
Inve
stm
ents
7.14
%4,
869,
535
49,0
97
44
2
2,
293,
165
-
269,
463
3,94
9
2,00
8,18
6
116,
738
-
128,
495
Adv
ance
s9.
95%
2,77
1,720
14
3,16
5
38
3,12
5
67
4,89
1
1,
097,
798
50
,629
366,
881
32,7
91
17
,407
5,03
3
-
Oth
er a
sset
s15
2,24
7
-
-
-
-
-
-
-
-
-
152,
247
8,80
3,53
0
63
9,41
5
38
4,07
8
2,
968,
406
1,
097,
944
32
0,25
5
37
0,83
0
2,
041,
008
13
4,53
5
5,
033
842,
026
Liab
ilitie
sBi
lls p
ayab
le95
,443
-
-
-
-
-
-
-
-
-
95,4
43
Bo
rrow
ings
6.07
%3,
460,
326
3,02
4,31
8
408,
837
4,34
4
8,55
7
9,13
1
3,93
9
1,20
0
-
-
-
Dep
osits
and
oth
er a
ccou
nts
5.94
%5,
228,
716
1,
531,
842
71
1,30
0
23
2,75
4
41
5,97
1
11
,638
3,76
5
-
1,
689,
032
-
63
2,41
4
Su
b-or
dina
ted
loan
s-
-
-
-
-
-
-
-
-
-
-
Lo
an fr
om S
tate
Ban
k of
Pak
istan
-
-
-
-
-
-
-
-
-
-
-
Liab
ilitie
s aga
inst
ass
ets s
ubjec
t to
finan
ce le
ase
-
-
-
-
-
-
-
-
-
-
-
Oth
er li
abili
ties
200,
939
-
-
-
-
-
-
-
-
-
20
0,93
9
8,
985,
424
4,55
6,16
0
1,12
0,13
7
237,
098
424,
528
20,7
69
7,
704
1,
200
1,
689,
032
-
92
8,79
6
O
n-ba
lance
shee
t gap
(1
81,8
94)
(3
,916
,745
)
(7
36,0
59)
2,
731,
308
67
3,41
6
29
9,48
6
36
3,12
6
2,
039,
808
(1
,554
,497
)
5,
033
(86,
770)
Off-
bala
nce
shee
t fin
anci
al in
stru
men
tsCo
mm
itmen
ts to
ext
end
cred
it14
7,07
5
147,
075
-
-
-
-
-
-
-
-
-
Com
mitm
ents
aga
inst
repo
bor
row
ing
3,45
4,87
8
3,
044,
754
41
0,12
4
-
-
-
-
-
-
-
-
Off-
balan
ce sh
eet g
ap3,
601,9
53
3,19
1,82
9
410,
124
-
-
-
-
-
-
-
-
Tota
l Yiel
d/In
tere
st R
isk S
ensit
ivity
Gap
(7,1
08,5
74)
(1,1
46,1
83)
2,73
1,30
8
673,
416
299,
486
363,
126
2,03
9,80
8
(1,5
54,4
97)
5,03
3
-
Cum
ulat
ive
Yiel
d/In
tere
st R
isk S
ensit
ivity
Gap
(7,1
08,5
74)
(8,2
54,7
57)
(5,5
23,4
49)
(4,8
50,0
33)
(4,5
50,5
47)
(4,1
87,4
21)
(2,1
47,6
13)
(3,7
02,1
10)
(3,6
97,0
77)
-
39.2
.3.1
Reco
ncili
atio
n of
ass
ets a
nd li
abili
ties e
xpos
ed to
yiel
d/in
tere
st ra
te ri
sk w
ith to
tal a
sset
s and
liab
ilitie
s.
Tota
l fin
ancia
l ass
ets a
s per
not
e 39
.2.3
8,80
3,53
0
To
tal f
inan
cial l
iabili
ties a
s per
not
e 39
.2.3
8,
985,
424
Add
non
-fina
ncial
ass
ets:
Add
non
-fina
ncial
liab
ilitie
s:
Ope
ratin
g fix
ed a
sset
s10
1,85
9
Oth
er li
abili
ties
372,
143
D
efer
red
tax
asse
ts25
6,17
7
Oth
er a
sset
s21
6,64
9
Ba
lance
as p
er B
alanc
e Sh
eet
9,37
8,21
5
Balan
ce a
s per
Bala
nce
Shee
t9,
357,
567
39.2
.3.2
Yiel
d ris
k is
the
risk
of d
eclin
e in
ear
ning
s due
to a
dver
se m
ovem
ent o
f the
yiel
d cu
rve.
39.2
.3.3
Inte
rest
rate
risk
Inte
rest
rate
risk
isth
eris
kth
atth
eva
lue
offin
ancia
lins
trum
entw
illflu
ctua
tedu
eto
chan
ges
inth
em
arke
tint
eres
trat
es.O
utof
tota
lfin
ancia
lass
ets
ofRs
.8,8
03.5
3m
illio
n(2
015:
Rs.8
,294
.89
mill
ion)
,the
finan
ciala
sset
sw
hich
wer
esu
bjec
tto
inte
rest
rate
risk
amou
nted
toRs
.7,9
61.5
mill
ion
(201
5:Rs
.7,6
85.2
2m
illio
n).I
nves
tmen
tsan
dot
her
asse
tsam
ount
ing
toRs
.4,7
23.1
mill
ion
(201
5:Rs
.3,9
96.4
mill
ion)
resp
ectiv
elyar
egu
aran
teed
byth
eG
over
nmen
tof
Paki
stan
.The
Ass
ets
Liab
ility
Com
mitt
ee (A
LCO
) of t
he B
ank
mee
ts p
erio
dica
lly a
nd e
nsur
es th
at th
e in
vest
men
ts a
re m
ade
in a
n ap
prop
riate
man
ner t
o m
itiga
te a
ny in
tere
st ra
te a
nd li
quid
ity ri
sk.
Rup
ees i
n '0
00R
upee
s in
'000
2016
Rup
ees i
n '0
00
Ove
r 1 to
3
mon
ths
Ove
r 3 to
6
mon
ths
Ove
r 6
mon
ths t
o 1
year
Ove
r 1 to
2
year
sU
pto
1 mon
thO
ver 2
to 3
ye
ars
Ove
r 3 to
5
year
sO
ver 5
to 10
ye
ars
Abov
e 10
ye
ars
Exp
osed
to Y
ield
/Int
eres
t ris
k
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
100
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
16M
ism
atch
of i
nter
est r
ate
sens
itive
ass
ets a
nd li
abili
ties
Effe
ctiv
eN
on-in
tere
st
Yiel
d/be
arin
gIn
tere
stfin
ancia
lra
tein
stru
men
ts
On-
bala
nce
shee
t fin
anci
al in
stru
men
tsAs
sets
Cash
and
bala
nces
with
trea
sury
ban
ks39
0,01
1
-
-
-
-
-
-
-
-
-
39
0,01
1
Ba
lance
s with
oth
er b
anks
4.12
%1,
739
58
7
21
0
14
4
60
67
-
12
16
1
-
49
8
Le
ndin
g to
fina
ncial
inst
itutio
ns7.
58%
885,
000
400,
000
485,
000
-
-
-
-
-
-
-
-
In
vest
men
ts9.
23%
4,11
7,49
1
356,
121
397,
839
297,
885
1,34
9,18
1
375,
754
275,
511
418,
361
576,
623
-
70,2
16
A
dvan
ces
12.9
9%2,
751,
710
14
2,12
3
42
8,87
6
67
1,24
9
95
6,22
8
88
,864
410,
878
28,4
18
19
,310
5,76
4
-
Oth
er a
sset
s14
8,94
0
-
-
-
-
-
-
-
-
-
14
8,94
0
8,
294,
891
89
8,83
1
1,
311,
925
96
9,27
8
2,
305,
469
46
4,68
5
68
6,38
9
44
6,79
1
59
6,09
4
5,
764
609,
665
Liab
ilitie
sBi
lls p
ayab
le11
4,10
7
-
-
-
-
-
-
-
-
-
11
4,10
7
Bo
rrow
ings
7.22
%2,
888,
685
2,
354,
626
48
9,51
1
4,
344
8,
688
17
,246
9,13
1
5,13
9
-
-
-
Dep
osits
and
oth
er a
ccou
nts
7.13
%4,
770,
201
1,
307,
911
81
8,85
1
22
5,43
4
41
7,20
6
5,
425
-
-
1,
493,
075
-
50
2,29
9
Su
b-or
dina
ted
loan
s-
-
-
-
-
-
-
-
-
-
-
Lo
an fr
om th
e St
ate
Bank
of P
akist
an-
-
-
-
-
-
-
-
-
-
-
Li
abili
ties a
gain
st a
sset
s sub
ject t
o fin
ance
leas
e-
-
-
-
-
-
-
-
-
-
-
O
ther
liab
ilitie
s21
7,99
6
-
-
-
-
-
-
-
-
-
21
7,99
6
7,
990,
989
3,
662,
537
1,
308,
362
22
9,77
8
42
5,89
4
22
,671
9,13
1
5,13
9
1,49
3,07
5
-
834,
402
On-
balan
ce sh
eet g
ap
303,
902
(2,7
63,7
06)
3,56
3
739,
500
1,87
9,57
5
442,
014
677,
258
441,
652
(896
,981
)
5,76
4
(2
24,7
37)
Off-
bala
nce
shee
t fin
anci
al in
stru
men
tsCo
mm
itmen
ts to
ext
end
cred
it27
8,26
3
27
8,26
3
-
-
-
-
-
-
-
-
-
Co
mm
itmen
ts a
gain
st re
po b
orro
win
g2,
871,
813
2,
384,
407
48
7,40
6
O
ff-ba
lance
shee
t gap
3,15
0,07
6
2,66
2,67
0
487,
406
-
-
-
-
-
-
-
-
Tota
l Yiel
d/ In
tere
st R
isk S
ensit
ivity
Gap
(5,4
26,3
76)
(483
,843
)
739,
500
1,87
9,57
5
442,
014
677,
258
441,
652
(896
,981
)
5,76
4
-
-
Cum
ulat
ive
Yiel
d/ In
tere
st R
isk S
ensit
ivity
Gap
(5,4
26,3
76)
(5,9
10,2
19)
(5,1
70,7
19)
(3,2
91,1
44)
(2,8
49,1
30)
(2,1
71,8
72)
(1,7
30,2
20)
(2,6
27,2
01)
(2,6
21,4
37)
-
Reco
ncili
atio
n of
ass
ets a
nd li
abili
ties e
xpos
ed to
yiel
d/ in
tere
st ra
te ri
sk w
ith to
tal a
sset
s and
liab
ilitie
s.
Tota
l fin
ancia
l ass
ets
8,29
4,89
1
Tota
l fin
ancia
l liab
ilitie
s7,
990,
989
A
dd n
on-fi
nanc
ial a
sset
s:A
dd n
on-fi
nanc
ial li
abili
ties:
O
pera
ting
fixed
ass
ets
120,
283
O
ther
liab
ilitie
s26
9,22
1
Oth
er a
sset
s20
1,35
2
Ba
lance
as p
er B
alanc
e Sh
eet
8,61
6,52
6
Balan
ce a
s per
Bala
nce
Shee
t8,
260,
210
Yiel
d ris
k is
the
risk
of d
eclin
e in
ear
ning
s due
to a
dver
se m
ovem
ent o
f the
yiel
d cu
rve.
Inte
rest
rate
risk
Inte
rest
rate
risk
isth
eris
kth
atth
eva
lue
offin
ancia
lins
trum
entw
illflu
ctua
tedu
eto
chan
ges
inth
em
arke
tint
eres
trat
es.O
utof
tota
lfin
ancia
lass
ets
ofRs
.8,2
94.8
9m
illio
n(2
014:
Rs.5
,106
.12
mill
ion)
,the
finan
ciala
sset
sw
hich
wer
esu
bjec
tto
inte
rest
rate
risk
amou
nted
toRs
.7,6
85.2
3m
illio
n(2
014:
Rs.4
,522
.35
mill
ion)
.Inv
estm
ents
and
othe
rass
ets
amou
ntin
gto
Rs.3
,996
.41
mill
ion
(201
4:Rs
.1,3
47.1
4m
illio
n)re
spec
tively
are
guar
ante
edby
the
Gov
ernm
ento
fPak
istan
.The
Ass
ets
Liab
ility
Com
mitt
ee (A
LCO
) of t
he B
ank
mee
ts p
erio
dica
lly a
nd e
nsur
es th
at th
e in
vest
men
ts a
re m
ade
in a
n ap
prop
riate
man
ner t
o m
itiga
te a
ny in
tere
st ra
te a
nd li
quid
ity ri
sk.
Rupe
es in
'000
Rupe
es in
'000
Rupe
es in
'000
2015
Upt
o 1
mon
thO
ver 1
to 3
m
onth
sO
ver 3
to 6
m
onth
s
Ove
r 6
mon
ths t
o 1
year
Ove
r 1 to
2
year
sO
ver 2
to 3
ye
ars
Ove
r 3 to
5
year
sO
ver 5
to 1
0 ye
ars
Abo
ve 1
0 ye
ars
Tota
l
Exp
osed
to Y
ield/
Inte
rest
risk
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
101
SME
BAN
K LI
MIT
ED
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
1639
.3Li
quid
ity R
isk
39.3
.1M
atur
ities
of A
sset
s and
Lia
bilit
ies
Asse
tsCa
sh a
nd b
alanc
es w
ith tr
easu
ry b
anks
560,
802
487,
602
15,3
04
1,13
6
3,01
5
-
-
-
53,7
45
-
Ba
lance
s with
oth
er b
anks
4,22
6
2,63
5
511
350
146
163
-
31
390
-
Le
ndin
g to
fina
ncial
inst
itutio
ns44
5,00
0
44
5,00
0
-
-
-
-
-
-
-
-
Inve
stm
ents
4,86
9,53
5
49,0
97
442
2,29
3,16
5
-
26
9,46
3
3,
949
2,00
8,18
6
245,
233
-
A
dvan
ces
2,77
1,720
90
,861
30
9,64
2
62
0,24
5
67
1,44
5
35
7,51
4
49
3,58
2
152,
791
70,6
07
5,03
3
Ope
ratin
g fix
ed a
sset
s10
1,859
2,59
3
7,25
6
7,40
8
10,4
32
12,8
79
11,4
77
14
,497
3,
274
32
,043
D
efer
red
tax
asse
ts25
6,17
7
-
-
-
-
25
6,17
7
-
-
-
-
Oth
er a
sset
s36
8,89
6
11
0,17
4
5,
946
5,
448
15
3,59
2
10
4
23
9
299
93,0
94
-
9,
378,
215
1,
187,
962
33
9,10
1
2,
927,
752
83
8,63
0
89
6,30
0
50
9,24
7
2,17
5,80
4
466,
343
37,0
76
Liab
ilitie
sBi
lls p
ayab
le95
,443
82,6
74
-
-
-
-
-
-
12
,769
-
Borr
owin
gs3,
460,
326
3,
024,
318
40
8,83
7
4,
344
8,
557
9,
131
3,
939
1,20
0
-
-
Dep
osits
and
oth
er a
ccou
nts
5,22
8,71
6
1,87
3,70
5
713,
590
236,
024
416,
903
12,9
38
3,76
5
-
1,97
1,79
1
-
Su
b-or
dina
ted
loan
s-
-
-
-
-
-
-
-
-
-
Liab
ilitie
s aga
inst
ass
ets s
ubjec
t to
finan
ce le
ase
-
-
-
-
-
-
-
-
-
-
D
efer
red
tax
liabi
lities
-
-
-
-
-
-
-
-
-
-
O
ther
liab
ilitie
s57
3,08
2
18
7,21
7
1,
498
1,
191
1,
867
80
7
2
1,57
1
378,
929
-
9,
357,
567
5,
167,
914
1,
123,
925
24
1,55
9
42
7,32
7
22
,876
7,
706
2,77
1
2,36
3,48
9
-
N
et a
sset
s20
,648
(3,9
79,9
52)
(7
84,8
24)
2,68
6,19
3
411,
303
873,
424
501,
541
2,
173,
033
(1
,897
,146
)
37,0
76
Shar
e ca
pita
l2,
392,
507
Rese
rves
206,
526
Una
ppro
priat
ed p
rofit
(2,5
90,7
05)
Surp
lus o
n re
valu
atio
n of
ass
ets
12,3
20
20,6
48
39.4
Ope
ratio
nal R
isk
Ope
ratio
nal r
isk is
the
risk
of lo
ss re
sulti
ng fr
om in
adeq
uate
or f
ailed
inte
rnal
proc
esse
s, pe
ople
and
syst
em o
r fro
m e
xter
nal e
vent
s.
Rup
ees i
n '0
00
Inco
mpl
iance
with
the
BSD
circu
larlet
terN
o.03
of20
11da
ted
Febr
uary
22,2
011,
allas
sets
and
liabi
lities
with
cont
ract
ualm
atur
ities
have
been
repo
rted
aspe
rthe
irre
main
ing
mat
uriti
es,a
ndw
here
cont
ract
ualm
atur
ities
are
nota
vaila
ble,
such
asse
tsan
dlia
bilit
iesha
vebe
enre
porte
das
pert
heir
expe
cted
mat
uriti
es,d
eter
min
edon
the
basis
ofbe
havi
orst
udy
ofpr
evio
ussix
year
s'hi
stor
icda
taun
derv
olat
ility
met
hodo
logy
.The
seba
sesh
ave
also
been
appr
oved
by
the
Ass
et a
nd L
iabili
ty C
omm
ittee
(ALC
O) o
f the
Ban
k.
Liqu
idity
risk
refle
cts
anen
terp
rise's
inab
ility
inra
ising
fund
sto
mee
tcom
mitm
ents
.In
orde
rto
avoi
dliq
uidi
tyris
k,th
eBa
nkha
sa
polic
yto
main
tain
suffi
cient
liqui
dity
.To
close
lyw
atch
liqui
dity
posit
ion,
the
Ass
ets
Liab
ility
Com
mitt
ee (A
LCO
) mee
ts p
erio
dica
lly to
ens
ure
that
ade
quat
e liq
uidi
ty is
main
tain
ed to
mee
t any
futu
re fi
nanc
ial o
blig
atio
n.
Ope
ratio
nalr
isks
are
man
aged
thro
ugh
Bank
-wid
eor
line
ofbu
sines
ssp
ecifi
cpo
licies
and
proc
edur
es,c
ontro
lsan
dm
onito
ring
tool
s.E
xam
ples
ofth
ese
inclu
depe
rson
nelm
anag
emen
tpra
ctice
s,da
tare
conc
iliat
ion
proc
esse
s,fr
aud
man
agem
ent u
nits
, tra
nsac
tion
proc
essin
g m
onito
ring
and
analy
sis a
nd b
usin
ess c
ontin
uity
plan
ning
.
2016
Upt
o 1 m
onth
Ove
r 1 to
3
mon
ths
Ove
r 3 to
6
mon
ths
Ove
r 6
mon
ths t
o 1
year
Ove
r 1 to
2
year
sO
ver 2
to 3
ye
ars
Ove
r 3 to
5
year
sO
ver 5
to 10
ye
ars
Abov
e 10
ye
ars
Tot
al
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
102
SME
BAN
K LI
MIT
ED
NO
TE
S T
O T
HE
UN
CON
SOLI
DAT
ED
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
16Li
quid
ity R
isk
Mat
uriti
es o
f Ass
ets a
nd L
iabi
litie
s
Asse
tsCa
sh a
nd b
alanc
es w
ith tr
easu
ry b
anks
390,
011
344,
131
9,33
1
540
1,43
5
-
-
-
34,5
74
-
Ba
lance
s with
oth
er b
anks
1,73
9
1,08
5
210
144
60
67
-
12
161
-
Le
ndin
g to
fina
ncial
inst
itutio
ns88
5,00
0
40
0,00
0
48
5,00
0
-
-
-
-
-
-
-
In
vest
men
ts4,
117,
491
35
6,12
1
39
7,83
9
29
7,88
5
1,
349,
181
37
5,75
4
27
5,51
1
418,
361
646,
839
Adv
ance
s2,
751,
710
81
,629
29
8,84
0
57
1,91
2
60
1,58
6
35
7,67
5
59
0,08
6
156,
011
88,2
07
5,76
4
Ope
ratin
g fix
ed a
sset
s12
0,28
3
2,
522
6,
074
7,
407
14
,528
23
,153
10
,435
17,5
05
6,61
6
32,0
43
Def
erre
d ta
x as
sets
-
-
-
-
-
-
-
-
-
-
O
ther
ass
ets
350,
292
237,
982
5,80
8
8,04
5
1,69
8
99
250
24
7
96
,163
-
8,61
6,52
6
1,42
3,47
0
1,20
3,10
2
885,
933
1,96
8,48
8
756,
748
876,
282
59
2,13
6
87
2,56
0
37
,807
Li
abili
ties
Bills
pay
able
114,
107
98,8
40
-
-
-
-
-
-
15
,267
-
Borr
owin
gs2,
888,
685
2,
354,
626
48
9,51
1
4,
344
8,
688
17
,246
9,
131
5,13
9
-
-
Dep
osits
and
oth
er a
ccou
nts
4,77
0,20
1
1,58
1,26
8
821,
011
226,
362
422,
329
5,42
5
-
-
1,
713,
806
-
Sub-
ordi
nate
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ans
-
-
-
-
-
-
-
-
-
-
Li
abili
ties a
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o fin
ance
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e-
-
-
-
-
-
-
-
-
-
Def
erre
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x lia
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ies-
-
-
-
-
-
-
-
-
-
Oth
er li
abili
ties
487,
217
202,
886
1,68
8
1,47
9
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27
5,91
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-
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0,21
0
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0
1,31
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0
232,
185
433,
180
23,7
15
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3
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985
-
Net
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ets
356,
316
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(1
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653,
748
1,53
5,30
8
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867,
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58
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,132
,425
)
37,8
07
Shar
e ca
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392,
507
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206,
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rofit
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,489
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ontin
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Tota
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onth
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Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
103
UNCONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED DECEMBER 31, 2016
Un audited2016 2015
40 EMPLOYEES PROVIDENT FUND TRUSTSize of the Fund 212,701 191,657 Cost of investments made 156,248 141,295 Percentage of investments made 73% 74%Fair value of investments 156,248 141,295
Breakup of investments is as follows: Rupees in '000 % age Rupees in '000 % age
Term Deposits Receipts (TDRs) 61,289 39% 12,663 9%Pakistan Investment Bonds (PIBs) - 0% 44,226 31%Bank deposit 94,959 61% 84,406 60%
41 DATE OF AUTHORIZATION
Ihsan ul Haq Khan Muhammad Adnan Jalil Zarar Haider Badr-ul-Arifeen President/CEO Director Director Director
These financial statements were authorized for issue by the Board of Directors of the Bank on March 03, 2017.
All investments out of provident fund trust have been made in accordance with Section 227 of the Companies Ordinance,1984 and rules formulated for this purpose.
Rupees in '000
2016 2015
Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
104
NO
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O T
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O
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s Notes to the Unconsol idated Financial StatementsFor the year ended December 31 , 2016
105
SMEBL: HO: CS: 2017/ 11 / 1237
NOTICE OF 15th ANNUAL GENERAL MEETINGTo
All Members of the Bank M/s Grant Thornton Anjum Rahman Notice is hereby given that 15th Annual General Meeting of SME Bank Limited will be held on Tuesday, March 28, 2017 at 4:00 pm at Registered Office, SME Bank Ltd., 56-F, Nazimuddin Road, Blue Area, F-6/1, Islamabad to transact the following:
Ordinary Business:
1. To confirm the minutes of 14th Extra Ordinary General Meeting of shareholders of the Company held on March 30, 2016.
2. To receive, consider and adopt the Audited Financial Statements of the Bank for the year ended 31st December 2016 together with Auditors’ Report, Statement of Compliance with Public Sector Companies (Corporate Governance) Rules and Review Report thereon.
3. Review of Contents of Annual Report 2016. 4. To appoint Auditors and to fix their remuneration for the year ending December 31, 2017. 5. Provision of new mobile set to President/CEO6. To transact any other business with the permission of the Chair.
By Order of the Board
Islamabad Sajjad Ahmad WarraichDated: March 07, 2017 Company Secretary
(Cell # 0300-5599658) Notes:
1. A Member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote for him/her at the meeting. A proxy must be a member of the company. However, an association (whether body corporate or not) being a member of the Company may appoint as its proxy one of its officers though not a member of the Company. (Form of Proxy is attached)
2. An instrument of the proxy and the Power of Attorney or other Authority (if any) under which it is signed or a notarially certified copy of such Power of Attorney or Authority in order to be valid must be duly signed and deposited at registered office of the Company not less than 48 hours before the time of holding the meeting.
This page is intentionally left blank
107
SME BANK LIMITEDCONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
This page is intentionally left blank
109
Grant Thornton Anjum Rahman
302 B, 3rd Floor Evacuee Trust ComplexAga Khan Road, F-5/1Islamabad Pakistan
Chartered AccountantsMember of Grant Thornton International Ltd.
T: +92 51 2271906, 2274665F: +92 51 2273874www.gtpak.com
Auditors ’ Repor t to the Members
We have audited the annexed consolidated financial statements comprising consolidated statement of financial position of SME Bank Limited (the Bank) and its subsidiary company (collectively referred as “the Group”) as at December 31, 2016 and the related consolidated profit and loss account, consolidated statement of comprehensive income, consolidated cash flow statement and consolidated statement of changes in equity together with the notes forming part thereof (here-in-after referred to as the ‘consolidated financial statements’) for the year then ended. These consolidated financial statements include unaudited certified returns from the branches, except for 10 branches which have been audited by us. We have also expressed separate opinions on the financial statements of SME Bank Limited and is subsidiary company namely SME Leasing Limited.
These consolidated financial statements are responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on audit.
Our audit was conducted in accordance with the International Standards on Auditing and accordingly included such test of accounting records and such other auditing procedures as we considered necessary in the circumstances.
a) We are unable to verify the net carrying value of Rs 16.17 million of Trading Rights Entitlement Certificate (TREC) of Lahore Stock Exchange Limited (LSEL) because the Trading Rights in the stock exchange lapsed in the year 2014 as explained in Note 15.3.1; and
b) Deferred tax asset of Rs. 264.230 million has been recognized on the basis of expected net profits arising from future privatization of the Bank as described in Note 14.1 to the consolidated financial statements which we have not been able to verify.
In our opinion, except for the possible effects on the consolidated financial statements of the matters described in paragraphs ‘a’ and ‘b’ above, the consolidated financial statements present fairly the financial position of SME Bank Limited and its subsidiary company as at December 31, 2016 and the results of their operations for the year then ended.
We draw attention to the following matters:
i. Note 7.5.1 to the consolidated financial statements indicates that the Bank has incurred a net loss after tax of Rs. 199.242 million (2015: 282.157 million) and as of the reporting date the accumulated losses stood at Rs. 2.590 billion (2015: 2.296 billion). The Bank is short on cash which is indicated by waiver by State Bank of Pakistan in meeting the minimum capital requirement by 9.991 billion (2015: 9.697 billion) and the fact that during the last few years GOP’s budget allocation for the Bank has been negligible level. As stated in Note 7.5.1, these conditions indicate the existence of a material uncertainty that may cast significant doubt on the Bank’s ability to continue as a going concern;
ii. Note 7.5.2 to the consolidated financial statements, which indicates that SME Leasing Limited’s (SMEL) has incurred net loss of Rs. 13.382 million (2015: Rs. 18.386 million) during the year ended December 31, 2016, and as of that date, its accumulated losses amounted to Rs. 211.510 million (2015: Rs. 198.196 million). These conditions, along with other matters as set forth in
110
Grant Thornton Anjum Rahman
Chartered AccountantsMember of Grant Thornton International Ltd.
the above referred note; indicate the existence of a material uncertainty that may cast significant doubt about SMEL ability to continue as a going concern; and
ii. Note 13.2.1 to the consolidated financial statements describes that the resolution of the matter of ownership of plots is subject to the review by the Ministry Finance and the Capital Development Authority for finalizing the status of rights and claims associated with the referred plots so as to enable the Bank to accordingly adjust its books of accounts. As the above review is pending the outcome of the matter is un-determinable at this stage and therefore adjustments, if any in this respect, have not been recognized in consolidated financial statements.
Our opinion is not qualified in respect of above matters.
The consolidated financial statements of the Group for the year ended December 31, 2015 were audited by another auditor who expressed an audit opinion on March 05, 2016. The referred opinion was qualified to indicate that the carrying value of Rs. 16.17 million of TREC of LSEL has not been fully provided for.
GRANT THORNTON ANJUM RAHMANChartered AccountantsAudit Engagement Partner: Nadeem Tirmizi
Islamabad Date: March 03, 2017
111
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at December 31 , 2016AS AT DECEMBER 31, 2016
Restated2016 2015
NoteASSETS
Cash and balances with treasury banks 8 560,882 390,101 Balances with other banks 9 26,665 3,315 Lendings to financial institutions 10 445,000 885,000 Investments 11 4,741,040 4,051,558 Advances 12 3,132,360 3,166,833 Operating fixed assets 13 110,506 129,581 Deferred tax assets 14 256,177 - Other assets 15 369,842 355,415
9,642,472 8,981,803 LIABILITIES
Bills payable 16 95,443 114,107 Borrowings 17 3,460,699 2,889,058 Deposits and other accounts 18 5,226,975 4,768,752 Sub-ordinated loans - - Liability against assets subject to finance lease 19 601 1,975 Deferred tax liabilities - - Other liabilities 20 809,646 748,437
9,593,364 8,522,329 NET ASSETS 49,108 459,474
REPRESENTED BYShare capital 21 2,392,507 2,392,507 Reserves 22 234,660 234,660 Unappropriated loss 22 (2,638,446) (2,275,929)
(11,279) 351,238 Non-controlling interest 24 48,067 52,477
36,788 403,715 Surplus on revaluation of assets 23 12,320 55,759
49,108 459,474
CONTINGENCIES AND COMMITMENTS 25
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Rupees in '000
The annexed notes from 1 to 44 and annexure A form an integral part of these consolidated financial statements.
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
112
CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended December 31 , 2016
Restated
Note
Mark-up/return/interest earned 26 634,645 715,659 Mark-up/return/interest expensed 27 441,366 436,487 Net mark-up/interest income 193,279 279,172
Provision against non-performing loans and advances-net 12.5 (2,965) (68,842) Reversal for diminution in the value of investments 11.4 (3,885) - Bad debts written off directly - -
(6,850) (68,842) Net mark-up/interest income after provisions 200,129 348,014
NON MARK-UP/INTEREST INCOME
Fee, commission and brokerage income 12,520 11,022 Dividend income 695 1,395 Income from dealing in foreign currencies - - Gain on sale of securities 28 34,302 32,536 Unrealized gain on revaluation of investments classified as held for trading - - Other income 29 4,571 3,287 Total non-markup/interest income 52,088 48,240
252,217 396,254
NON MARK-UP/INTEREST EXPENSES
Administrative expenses 30 777,853 682,821 Other provisions/write offs 15.4 2,519 9,356 Other charges 31 - 826 Total non-markup/interest expenses 780,372 693,003 LOSS BEFORE TAXATION (528,155) (296,749)
Taxation - Current 32 6,979 7,866 - Prior - (4,073) - Deferred (264,230) -
(257,251) 3,793 LOSS AFTER TAXATION (270,904) (300,542) Attributable to:Equity holders of the Bank (267,310) (295,604) Non-controlling interest (3,594) (4,938)
(270,904) (300,542)
Basic/diluted (loss) per share (Rupees) 33 (1.12) (1.24)
Rupees in '0002016 2015
The annexed notes from 1 to 44 and annexure A form an integral part of these consolidated financial statements.
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
113
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended December 31 , 2016
Restated
Net loss after taxation (270,904) (300,542)
(95,189) (41,168) Comprehensive income transferred to equity (366,093) (341,710)
Net change on remeasurement of available for sale investment to fair value (35,386) (8,440) (8,053) -
(43,439) (8,440)
Total comprehensive income (409,532) (350,150)
Attributable to:Equity holders of the Bank (405,122) (345,557) Non-controlling interest (4,410) (4,593)
(409,532) (350,150)
The annexed notes from 1 to 44 and annexure A form an integral part of these consolidated financial statements.
Deferred tax
2016
Recognition of net actuarial (loss)/gain
Components of comprehensive income not reflected in equity
2015 Rupees in '000
Items that will never be reclassified subsequently to profit and loss account
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
114
CONSOLIDATED CASH FLOW STATEMENTFor the year ended December 31 , 2016
Restated 2016
NoteCASH FLOW FROM OPERATING ACTIVITIES Loss before taxation (528,155) (296,749) Less: Dividend income (695) (1,395)
(528,850) (298,144) Adjustments for non-cash/ other items Depreciation 32,157 29,687 Amortization 879 755 Reversal against non-performing advances (2,965) (68,842) Reversal of provision for diminution in the value of investment (3,885) - Gain on sale of fixed asset (3,312) (1,743) Finance charges on leased assets 119 266 Other provisions 2,519 9,356
- - 25,512 (30,521)
(503,338) (328,665) (Increase)/ Decrease in operating assets Lendings to financial institutions 40,000 (285,000) Advances 37,438 304,781 Other assets (excluding advance taxation) (16,946) (147,567)
60,492 (127,786) Increase/(Decrease) in operating liabilities Bills payable (18,664) 55,809 Borrowings from financial institutions 571,641 2,111,625 Deposits 458,223 1,426,597 Other liabilities (excluding current taxation) (32,815) (21,539)
978,385 3,572,492 535,539 3,116,041
Income tax paid (8,144) (14,910) Net cash flow generated from operating activities 527,395 3,101,131 CASH FLOW FROM INVESTING ACTIVITIESNet (investment)/disinvestment in available-for-sale securities (748,503) (2,658,825) Net investment in held-to-maturity securities 26,687 (21,687) Dividend received 695 1,395 Investment in operating fixed assets (15,844) (20,032) Sale proceeds of property and equipment disposed-off 5,194 3,707 Net cash flow used in investing activities (731,771) (2,695,442) CASH FLOW FROM FINANCING ACTIVITIESPayment of lease obligations (1,493) (1,464) Net cash flow used in financing activities (1,493) (1,464) (Decrease)/Increase in cash and cash equivalents (205,869) 404,225 Cash and cash equivalents at beginning of the period 793,416 389,191 Cash and cash equivalents at end of the period 34 587,547 793,416
Bad debts written off directly
Rupees in '0002015
The annexed notes from 1 to 44 and annexure A form an integral part of these consolidated financial statements.
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
115
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended December 31 , 2016
Shar
e Ca
pita
l S
tatu
tory
rese
rve
Res
erve
aga
inst
fu
ture
loss
es
Una
ppro
pria
ted
loss
S
ub T
otal
Rup
ees i
n '0
00Ba
lanc
e as
at J
anua
ry 0
1, 20
152,
392,
507
22
7,01
9
7,
641
(1
,939
,100
)
68
8,06
7
57
,070
745,
137
Tot
al c
ompr
ehen
sive
inco
me
for t
he y
ear e
nded
Dec
embe
r 31,
2015
Net
loss
for t
he y
ear e
nded
Dec
embe
r 31,
201
5 - r
esta
ted
-
-
-
(2
95,6
04)
(2
95,6
04)
(4
,938
)
(300
,542
)
Surp
lus o
n re
valu
atio
n of
inve
stm
ent
288
288
Effe
ct o
f rec
ogni
tion
of a
ctua
rial g
ain-
-
-
(41,
225)
(41,
225)
57
(41,
168)
Bala
nce
as a
t Dec
embe
r 31,
2015
- re
stat
ed2,
392,
507
22
7,01
9
7,
641
(2
,275
,929
)
35
1,238
52,4
77
40
3,71
5
Tot
al c
ompr
ehen
sive
inco
me
for t
he y
ear e
nded
Dec
embe
r 31,
2016
Net
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116
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
1. GENERAL INFORMATION
1.1 The Group
1.1.1 The Group comprises of SME Bank (Private) Limited (the Bank) and SME Leasing Limited (SMEL).
1.1.2 SME Bank Limited SME Bank Limited (the Bank) is a public limited company incorporated in Pakistan on October
30, 2001 under the Companies Ordinance, 1984 having its registered office at 56-F, Nazim-ud-Din Road, F-6/1, Blue Area Islamabad. The Bank obtained its business commencement certificate on April 16, 2005 which became effective from the date of its issue. The Bank is a Scheduled Commercial Bank engaged in the business of banking with the primary objective to support and develop Small and Medium Enterprise (SME) sector in Pakistan by providing necessary financial assistance and business support services on sustainable basis. The Bank is operating through a network of 13 Commercial banking branches. Based on the latest credit rating report dated April 14, 2016 issued by PACRA Credit Rating Company Limited, credit rating of the Bank was “B” (Single B) in the long term and “B” (Single B) in the short term.
In terms of the provisions of the State Bank of Pakistan BSD circular No. 7 of 2009, the Bank was required to increase its paid up capital (net of losses) as at December 31, 2016 up to Rs. 10 billion. The State Bank of Pakistan (SBP) has granted exemption vide SBP letter # BPRD/BA&CP/646/1066/2017 dated January 13, 2017 from meeting Minimum Capital requirement till June 30, 2017 or completion of restructuring/privatization of the Bank, whichever is earlier.
Amalgamation of defunct RDFC and SBFC The Federal Government promulgated the Regional Development Finance Corporation
(RDFC) and Small Business Finance Corporation (SBFC) Amalgamation and Conversion Ordinance, 2001 (the Ordinance 2001) setting forth the mechanism of amalgamation of defunct RDFC and SBFC. Both these entities were Development Financial Institutions (DFIs). In pursuance of the Ordinance 2001, Finance Division, Ministry of Finance issued an Order (SRO (1) 2001) dated December 29, 2001 setting forth the scheme of amalgamation of RDFC and SBFC with the Bank effective January 1, 2002. Pursuant to this scheme entire assets and liabilities of defunct RDFC and SBFC as at December 31, 2001 were transferred to the Bank at fair value. These two institutions stand dissolved and ceased to exist effective January 1, 2002. The Bank allotted its shares to the share holders of defunct RDFC and SBFC in proportion to their shareholding therein based on the fair value of net assets of defunct RDFC and SBFC on December 31, 2001.
1.1.3 SME Leasing Limited SME Leasing Limited (SMEL) was incorporated in Pakistan on July 12, 2002 as an unlisted
public company and acquired the status of a listed company on December 13, 2006. The Bank (the Holding Company) holds 73.14% (December 31, 2015: 73.14%) shares of SMEL. SMEL is listed on Pakistan Stock Exchange (formerly Lahore Stock Exchange) and its registered office is situated at 56-F, Nazim-ul-Din Road F-6/1, Blue Area, Islamabad. The core objective of the SMEL is to extend lease and working capital financing facilities to small and medium enterprises of the country.
117
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
2. BASIS OF CONSOLIDATION
These consolidated financial statements include the financial statements of the Bank and SMEL (collectively referred to as “ the Group”).
The assets and liabilities of the SMEL have been consolidated on a line by line basis and the carrying value of investment held by the Bank is eliminated against the SMEL’s equity held by the Bank in the consolidated financial statements.
Non-controlling interest is that part of the net results of operations and of net assets of SMEL attributable to the interest which are not owned by the Bank. Non controlling interest is presented as separate item in these consolidated financial statements.
Material intra-group balances and transactions have been eliminated.
3. BASIS OF PRESENTATION
3.1 These consolidated financial statements have been presented in accordance with the requirements of format prescribed by the State Bank of Pakistan’s BSD Circular No. 4 dated February 17, 2006.
3.2 Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Bank operates. The consolidated financial statements are presented in Pak. Rupee, which is the Bank’s functional currency. Figures have been rounded off to the nearest thousand of rupees unless otherwise stated.
4. STATEMENT OF COMPLIANCE
4.1 These consolidated financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) , provisions of and directives issued under the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962 and the directives issued by the State Bank of Pakistan. In case requirements differ, the provisions of and directives issued under the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 and the directives issued by the State Bank of Pakistan shall prevail.
International Accounting Standard 39, “Financial Instruments: Recognition and Measurement”, International Accounting Standard 40, “Investment Property” and International Financial Reporting Standard 7,”Financial Instruments: Disclosure” are not applicable to banking companies in Pakistan. Accordingly, the requirements of these Standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the State Bank of Pakistan through various circulars.
4.2 Standards, interpretations and amendments to approved accounting standards that are not yet effective
The following standards, amendments and interpretations of approved accounting standards will be effective for accounting periods beginning on or after 01 January 2017:
118
Effective date (accounting periods beginning on or after)
IFRS 2 Share Based Payments - Amendments January 01, 2018 IFRS 16 Leases January 01, 2019 IAS 7 Statement of Cash Flows - Amendments January 01, 2017 IAS 12 Income Taxes - Amendments January 01, 2017 IAS 28 Investments in Associates and Joint Ventures - Amendments January 01, 2018 IFRS 12 Disclosure of Interest in Other Entities - Amendments January 01, 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration - Amendments January 01, 2018 The above mentioned standards, amendments and interpretations to published standards and
new interpretation to existing standard are either not relevant to the Bank’s operations or are not expected to have significant impact on the Bank’s financial statements other than increase in disclosure in certain cases.
Other than the aforesaid standards, interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards, which have not been adopted and are under consideration of relevant committee of the Institute of Chartered Accountants of Pakistan (ICAP):
IFRS 1 First Time Adoption of International Financial Reporting Standards IFRS 9 Financial Instruments IFRS 14 Regulatory Deferral Accounts IFRS 15 Revenue from Contract with Customers
Implementation of IFRS 7 has been held in abeyance for Banks and non-banking finance companies engaged in investment finance services, discounting services and housing finance services. The Implementation of IAS 39 and IAS 40 has been held in abeyance by the SBP for banks and DFIs.
4.3 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year
There are certain other and amended standards, interpretations and amendments that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2016 but are considered not to be relevant or do not have any significant effect on the Bank’s operations and therefore not detailed in these financial statements.
5 BASIS OF MEASUREMENT
5.1 These consolidated financial statements have been prepared under the historical cost convention as modified for certain investments which are carried at fair value, and defined benefit pension and gratuity plan, defined benefit unfunded gratuity scheme, unfunded compensated absences and benevolent fund which are carried at present value of defined benefit obligations net of fair value of plan assets, wherever applicable.
5.2 Use of critical accounting estimates and judgments The preparation of consolidated financial statements in conformity with approved accounting
standards as applicable in Pakistan requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
119
accounting policies. The Bank uses estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas where assumptions and estimates are significant to the Bank’s financial statements or where judgment was exercised in application of accounting policies are as follows:
i) Classification of investments (note 5.2) ii) Provision against investments (note 5.2) and advances (note 5.4) iii) Useful life of operating fixed assets and intangibles (note 5.5) iv) Income taxes (note 5.7) v) Staff retirements and other benefits (note 5.8); and vi) Impairment (note 5.6)
6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
6.1 Cash and cash equivalents Cash and cash equivalents comprise of cash and balances with treasury banks, balances with
other banks and call money lendings. 6.2 Investments Investments other than those categorised as held-for-trading are initially recognised at fair
value which includes transactions costs associated with the investments. Investments classified as held-for-trading are initially recognised at fair value, and transaction costs are expensed in the profit and loss account.
All regular way purchases/sales of investment are recognised on the trade date, i.e., the date the Group commits to purchase/sell the investments. Regular way purchases or sales of investment require delivery of securities within the time frame generally established by regulation or convention in the market place.
The Group has classified its investment portfolio into ‘held-for-trading’, ‘held-to-maturity’
and ‘available-for-sale’ as follows: Held for trading These are securities which are acquired with the intention to trade by taking advantage of
short-term market/interest rate movements and are to be sold within 90 days. These are carried at market value, with the related unrealized gain/(loss) on revaluation being taken to profit and loss account.
Held to maturity These represent investments acquired by the Group with the intention and ability to hold
them upto maturity. These are carried at amortized cost less impairment if any. Impairment in debt securities is determined in accordance with the requirements of Prudential Regulations issued by SBP.
Available for sale These are investments that do not fall under the held-for-trading or held-to-maturity
categories. These are carried at market value except in case of unquoted securities where
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
120
market value is not available, which are carried at cost less provision for diminution in value, if any. Surplus/(deficit) on revaluation is taken to ‘surplus/(deficit) on revaluation of assets’ account shown below equity. Provision for diminution in value of investments in respect of unquoted shares is calculated with reference to book value of the same. On derecognition or impairment in quoted available-for-sale investments, the cumulative gain or loss previously reported as ‘surplus/(deficit) on revaluation of assets’ below equity is included in the profit and loss account for the period.
Provision for diminution in values of securities (other than term finance certificates) is made after considering impairment if any in their values, where the decline in prices of available for sale equity securities is significant or prolonged, it is considered impaired and included in consolidated profit and loss account. Provision for diminution in the value of term finance certificates is made as per Prudential Regulations issued by State Bank of Pakistan.
Held-for-trading and quoted available-for-sale securities are marked to market with reference
to ready quotes on Reuters page (PKRV) or MUFAP or the Stock Exchanges, as the case may be.
6.3 Agreements for sale and purchase of securities (repo and reverse repo) Securities sold under repurchase agreement (repo) are retained in the consolidated financial
statements as investments and a liability for consideration received is included in borrowings. The difference between sale and repurchase price is treated as mark-up expense and recognized over the period of contract.
Securities purchased under agreement to resell (reverse repo) are included in lendings to
financial institutions. The difference between purchase and resale price is treated as mark-up income and recognized over the period of the contract.
6.4 Advances Advances are stated net off specific and general provisions. Provisions are made in accordance
with the requirements of Prudential Regulations issued by the SBP and charged to the profit and loss account. These regulations prescribe an age based criteria (as supplemented by subjective evaluation of advances by the Group) for classification of non-performing loans and advances and computing provision/allowance there against. Such regulations also require the Group to maintain general provision/allowance against its Small Entity (SE) advances portfolio at specified percentage of such portfolio.
Advances are written off when there is no realistic prospect of recovery. 6.5 Capital work-in-progress, operating fixed assets, depreciation and amortization Capital work-in-progress Capital work-in-progress is stated at cost less impairment loss, if any. These are transferred to
specific assets as and when assets are available for use. Operating fixed assets-owned These are stated at cost less impairment losses and accumulated depreciation except for
leasehold land. Land is stated at cost less impairment, if any.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
121
Maintenance and normal repairs are charged to consolidated profit and loss account as and when incurred. Major renewals and improvements are capitalized.
Depreciation Depreciation is charged on straight line method at the rates given in note 13.3, commencing
from the month in which the asset is available for use. No depreciation is charged in the month of disposal of the asset. The residual value, useful life and depreciation method is reviewed and adjusted, if appropriate, at each balance sheet date.
Gains or losses on disposal of property and equipment are taken to the consolidated profit
and loss account.
Assets subject to finance lease Assets subject to finance lease are stated at cost less accumulated depreciation at the rates
similar to the Group owned assets and impairment loss (if any). The outstanding obligation under finance lease less financial charges allocated to future periods is shown as liability. Finance charges are calculated at interest rates implicit in the lease and are charged to consolidated profit and loss account in the period in which these are incurred.
Intangible assets An intangible asset is recognized only if it is identifiable, the Group has control over the asset,
it is probable that economic benefits will flow to the enterprise and the cost of the asset can be measured reliably.
All amortizable intangible assets that meet the recognition criteria are initially measured at cost and are amortized on a straight line basis at the rate given in note 13.4 commencing from the month when these assets are available for use. Intangible assets are stated at cost less accumulated amortization and impairment losses, if any. The residual value, useful life and amortization method is reviewed and adjusted, if appropriate, at each balance sheet date.
6.6 Impairment The carrying amount of assets are reviewed at each balance sheet date for impairment,
whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If such indication exists, and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amount. The resulting impairment loss is taken to the consolidated profit and loss account. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying value that would have been determined net of depreciation/amortization, if no impairment loss had been recognized.
The available for sale equity investments are impaired when there has been a significant or
prolonged decline in the value below its cost. Impairment loss is recognized in consolidated profit & loss account.
6.7 Deposits Deposits are recorded at the nominal values of proceeds received. Markup accrued on deposits
is recognised separately as part of other liabilities and is charged to consolidated profit and loss account on a time proportion basis.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
122
6.8 Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax
is recognised in the consolidated profit and loss account, except to the extent that it relates to items recognised directly in other comprehensive income or below equity, in which case it is recognised in other comprehensive income or below equity.
Current Provision for current tax is the expected tax payable on the taxable profit for the year using tax
rates applicable at the date of consolidated statement of financial position and any adjustment to tax payable for previous years.
Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary
differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit at the rates that are expected to apply to the period when the differences reverse based on the tax rates that have been enacted. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax asset is reduced to the extent it is no longer probable that the related tax benefits will be realized.
The Bank also recognizes deferred tax asset/liability on deficit/surplus on revaluation of
investments which is adjusted against the related deficit/surplus in accordance with the requirements of International Accounting Standard on ‘Income Taxes’ (IAS 12). However, keeping in view the future profitable operation and uncertain status of privatization of the Group; deferred tax assets has only been recognized to the extent of deferred tax liability as at balance sheet date.
The Bank takes into account the current income tax law and decisions taken by the taxation
authorities. Instances where the Group’s views differ from the views taken by the income tax department at the assessment stage and where the Group considers that its view on items of material nature is in accordance with law, the amounts are shown as contingent liabilities.
6.9 Staff retirement and other benefits The Group operates following staff retirement and other benefit schemes for its employees: Defined benefit plan- Pension and gratuity scheme Fully funded defined benefit pension and gratuity scheme for permanent employees.
Contributions are made in accordance with the actuarial valuation which is carried out periodically using ‘Projected Unit Credit Method’. All actuarial gains and losses are recognized immediately through other comprehensive income.
Defined benefit unfunded gratuity scheme The Group operates a defined benefit unfunded gratuity scheme for its contractual employees.
The obligation under the defined benefit unfunded gratuity scheme is recognized on the basis of actuarial valuation using the ‘Projected Unit Credit Method’.
Benevolent fund The Bank also operates a contributory benevolent fund for all its eligible employees (defined
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
123
benefit scheme). Contributions to this fund were made equally by the Bank and employees till March 2002. Thereafter it is wholly contributed by the Bank at the rate of 2% of basic salary with a ceiling of Rs. 200 per month per employee. Annual contribution towards the defined benefit scheme are made on the basis of actuarial advice using the Projected Unit Credit Method.
Compensated absences The Group provides compensated absences, an unfunded scheme, as per entitlement to all its
permanent and contractual employees. For its eligible employees, related provision is made in accordance with actuarial valuation. Provision for the year is charged to consolidated profit and loss account. The amount recognized in consolidated statement of financial position represents present value of defined benefit obligation.
Defined benefit plans are provided to employees of the Group. Calculations in this respect
require assumptions to be made of future outcomes, the principal ones being in respect of increase in remuneration, the expected long-term return on plan assets and the discount rate used to convert future cash flows to current values. Calculations are sensitive to changes in the underlying assumptions.
6.10 Revenue recognition 6.10.1 Advances Advances disbursed by SME Bank Limited: Markup/interest on performing advances is recognized on a time proportion basis over the
term of loan and advances. Markup/ interest/penal markup recoverable on non performing advances is recognized on receipt basis. Mark-up/interest on rescheduled/restructured advances and investments is recognised as permitted by the regulations of the SBP.
Advances disbursed by defunct RDFC and defunct SBFC : Advances and related markup are suspended. Markup/interest on advances is recognized on
receipt basis. 6.10.2 Return on investments Return on investments is recognized on a time proportion basis except on classified investment
which is recognized on receipt basis. Any premium paid or discount received on purchase of securities is amortized through consolidated profit and loss account over the remaining period of maturity on time apportionment basis.
6.10.3 Dividend income Dividend income is recognized when the Group’s right to receive the dividend is established. 6.10.4 Interest, fee, brokerage and commission Interest, fee, brokerage and commission, profit on other investments, bank deposits and
staff loans is recognized on accrual basis. Income on non-funded facilities (fee, commission, documentation charges etc.) is recognized on receipt basis except commission on bank guarantees which is recognized on accrual basis.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
124
6.11 Off setting Financial assets and liabilities are off set and the net amount is reported in the consolidated
statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or realize the asset and settle the liability simultaneously.
6.12 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of
a qualifying asset as part of the cost of that asset are capitalized. Other borrowing costs are recognized as an expense in the period in which it incurs.
6.13 Provisions Provisions are recorded when the Group has a present legal or constructive obligation as a
result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provision for guarantee claims and other off balance sheet obligations is recognized when intimated and reasonable certainty exists to settle the obligations. Expected recoveries are recognized by debiting customer accounts. Charge to consolidated profit and loss account is stated net off expected recoveries.
6.14 Financial assets and liabilities All financial assets and financial liabilities are recognized at the time when the Group becomes
a party to the contractual provisions of the instrument. A financial asset is derecognised where (a) the rights to receive cash flows from the asset have expired; or (b) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (i) the Group has transferred substantially all the risks and rewards of the asset, or (ii) the Group has neither transferred nor retained substantially all the risk and rewards of the asset, but has transferred control of the asset. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Any gain or loss on derecognition of the financial assets and financial liabilities is taken to income currently.
6.15 Segment reporting A segment is the distinguishable component of the Group that is subject to risks and
rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing products and services within a particular economic environment. Segment information is presented as per the Group functional structure and the guidance of the State Bank of Pakistan. the Group primary format of reporting is based on business segments:
6.15.1 Business segments Trading and sales This segment undertakes the Group’s treasury, money market and capital market activities. Commercial banking It includes loans, deposits and other transactions with individuals/ staff, small and medium
enterprises and corporate customers.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
125
Other leasing operations This segment includes the Group’s leasing activities. 6.15.2 Geographical segments The Group operates only in Pakistan. 6.16 Appropriation to reserves Dividend and appropriation to reserves (except appropriation required by law) after the
balance sheet date are recognized as liability in the Group financial statement in the year in which these are approved.
7 FINANCIAL RESTRUCTURING AND GOING CONCERN ASSUMPTION 7.1 The Government of Pakistan (GoP) assisted by Asian Development Bank (ADB) is working
on SME Sector Development Programme (SME SDP). Loan agreement for this programme between GoP and ADB and project agreement between ADB, SBP, Small and Medium Enterprise Development Authority (SMEDA) and the Bank have been signed on February 10, 2004. This programme, apart from other aspects on policy matrix relating to SME sector of Pakistan, also envisaged restructuring of SME Bank Limited. Salient features of the restructuring of the Bank are given below:
i) Adjustment of accumulated balances due from SBP on account of its share in profits
and losses of the Bank against credit lines provided by SBP;
ii) Payment of Rs 3 billion to SBP before January 1, 2004 against outstanding credit lines and conversion of balance of remaining credit lines into a loan repayable in full by June 30, 2006;
iii) Raising the paid-up capital to Rs 1,100 million by issuing additional shares to GoP;
iv) The Ministry of Finance (MoF) shall ensure that SBP’s shareholding in the Bank is terminated through the purchase of SBP held shares at nominal value by shareholders or otherwise;
v) 100% provision to be made against non performing financial assistance extended by the defunct RDFC and SBFC prior to January 1, 2002 which provision to be adjusted against SBP credit lines. SBP will recover this amount from proceeds of ADB loan to GoP;
vi) Reduction in the number of recovery branches, staff rationalization through Voluntary Separation Scheme (VSS), human resource audit and hiring of new professional staff on merit;
vii) Reimbursement by GoP of costs related to VSS launched for all regular employees;
viii) SBP to issue a banking license to the Bank on compliance with all conditions of restructuring and applicable SBP regulations. The commercial banking operations will be separate from the recovery operations of the defunct RDFC and SBFC portfolio and the two operations will be run as independent units within the Bank; and
ix) Privatization of the Bank by June 2006.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
126
7.2 Current status of the above referred financial restructuring is given below:
i) Accumulated balances of Rs 3,275.752 million due from SBP on account of its share in profits and losses of the Bank have been adjusted against credit lines provided by SBP;
ii) Rs. 7,393 million has been paid to SBP since 2003, to fully adjust the loan liability.
iii) Paid-up capital has been increased to Rs. 2,393 million by issue of 73,502,453 additional shares of Rs 10 each to GoP without right issue in 2004, issue of 40,000,000 additional shares of Rs 10 each to GoP without right issue in 2005, issue of 50,000,000 additional bonus shares of Rs 10 each to GoP without right issue in 2006 and issue of 39,250,700 additional shares of Rs. 10 each to GoP without right issue in 2007. Proceeds against issue of additional shares in 2004 were paid by GoP to SBP against the Bank’s loan balance due to SBP;
iv) Provision of Rs 1,283.196 million against non performing financial assistance extended by the defunct RDFC and SBFC was adjusted against credit lines of SBP in 2003;
v) VSS was approved by the Board of Directors of the Bank on November 7, 2003. 707 employees were relieved under the scheme upto December 31, 2005 and the aggregate reported cost for 707 employees was Rs. 1,764.268 million, which has been received by the bank by March 31, 2007;
vi) Human resource technical audit has been completed and report has been submitted to the Bank;
vii) Banking license was issued by SBP on September 13, 2004 and the Bank has started banking operations after the issue of certificate for commencement of banking business by SBP on April 16, 2005;
viii) Privatization Commission (PC) has constituted a transaction committee which is represented by members from the Privatization Commission, State Bank of Pakistan, Ministry of Finance and the Bank. Privatization Commission has approved M/s BMA Capital as Financial Advisors for the Bank and due diligence exercise for the privatization of the Bank has been carried out in the year 2008; and
ix) No further progress has been made on the privatization of the Bank. 7.3 Further restructuring of SME Bank: In compliance to the decisions taken during meeting at Ministry of Finance dated September
14, 2009 following actions have been undertaken.
i) VSS offered to the regular employees of the Bank in November 2009, wherein 138 employees opted for VSS offered vide Circular No. HO/HR&SD/2009/5385 dated October 15, 2009. These employees have been relieved at a total cost of Rs. 653 million with effect from November 14, 2009;
ii) Refer Note 12.2, for status of transfer of Old portfolio of defunct RDFC & defunct SBFC to National Bank of Pakistan; and
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
127
iii) Government of Pakistan have allocated an amount of Rs. 2 billion in the annual budget 2012-13, Rs. 1 billion for the year 2013-14 and Rs. 0.5 billion for the year 2014-15 for equity injection into the Bank. However, same has not been materialized.
7.4 Current Status of Privatization of SME Bank GOP has decided to divest its equity stake in the Bank alongwith management control to a
strategic investor through Privatization Commission (PC). PC appointed financial advisory consortium (FCC) comprising of Elixir Securities Pakistan
(Pvt) Limited, Bridge Factor (Pvt) Limited, KPMG Taseer Hadi & Co (financial and tax advisor) and Mohsin Tayebaly & Co. (legal counsel) to conduct this transaction.
Transaction structure was approved by PC board on Jan 19, 2017 and recommended to Cabinet Committee on Privatization (CCOP).
CCOP approved the transaction structure in its meeting held on January 27, 2017. PC invited expression of Interest (EOI) on February 14, 2017, from reputed local and international investors who have an interest in entering the process towards acquiring strategic shareholding in SME Bank. Last date to receive Statement of Qualification (SOQ) is March 17, 2017. Silent features of the transaction structure are as follows:
i) SBP will issue a new banking license of specialzed nature (with at least 60% advances
for SME);
ii) Investor to maintain minimum capital requirement (MCR) of Rs. 6 billion on staggered basis, Rs. 2 billion would be required to be injected upfront while Rs. 1 billion each year for next four years;
iii) SME Leasing limited, a majority owned listed subsidiary of SME Bank, would be the part of transaction on “as is basis”;
iv) The defunct SBFC and RDFC portfolios appearing in books of SME Bank will not be part of the transaction;
v) CDA plots in G-5/2 and G-7 Islamabad appearing in the books of the Bank will not be part of the transaction;
vi) The Bank can be used as a platform for delivering Digital Finance/Fintech/Branch less banking services, subject to fulfilment of applicable requirement of SBP; and
vii) The SBP has offered a variety of incentives including youth business loans scheme, credit guarantee schemes, export finance schemes, refinancing facilities amongst others to promote SME financing. The potential investor will be able to avail these incentives offered by the SBP, subject to fulfillment of requisite operational requirements.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
128
7.5 Going concern assumption and minimum capital requirement 7.5.1 The Bank During the current year the Bank has incurred a net loss after tax of Rs. 199.242 million (2015:
282.157 million) and as of the reporting date the accumulated losses stood at Rs. 2,590 million (2015: 2,296 million). The Bank, due to cash deficit, is short by Rs. 9,991 million (2015: 9,697 million) in meeting the minimum capital requirements (MCR) of Rs. 10 billion which has been waived by SBP and further due to the reason that during the last few years GOP’s budget allocation for the Bank has remained negligible. These conditions indicate the existence of material uncertainty that may cast significant doubt on the Bank’s ability to continue as a going concern and therefore, it may be unable to realize its assets and discharge its liabilities in the ordinary course of business. Having regard to the above, GOP being a majority shareholder of the Bank with 94% of shares has invited expression of interest from reputed local and or international investors who have an interest in entering the process towards acquiring strategic shareholding in Bank with management control. The management of the Bank strongly believes that the above will attract significant interest and will materialize considering the infra structure of the Bank and because of the restrictions by State Bank of Pakistan on further issue of banking license. In view of above the management of the Bank believes that the use of going concern assumption in preparation of these financial statements is appropriate.
7.5.2 SME Leasing limited - Subsidiary Company (SMEL) SMEL has been incurring losses since year ended December 31, 2009 which has resulted in
erosion of equity. During the year ended December 31, 2016, SMEL has incurred a loss of Rs. 13.382 million (2015: Rs. 18.386 million) and the accumulated losses to Rs. 211.510 million as at the year end (2015: Rs. 198.196 million). Further, the net assets of SMEL amounting to Rs. 156.956 million (2015: Rs. 173.373 million) includes non-performing leases & loans and finances, net of provisions of Rs. 163.531 million (2015: Rs. 199.751 million).
Further SMEL is dependent on the running finance facility granted by the holding company
(the Bank). The revised prudential regulation of State Bank of Pakistan (SBP) applicable from June 2015 has restricted the exposure by bank to a related party to the extent of 7.5% of its equity. However, the holding company (the Bank) has applied and obtained relaxation of the aforesaid requirement in respect of its financing to SMEL by the State Bank of Pakistan, which will expire on June 2017.
The above factors indicate the existence of a material uncertainty which may cast significant
doubt on the SMEL’s ability to continue as a going concern and SMEL may not be able to realize its assets and discharge its liabilities in the normal course of business. However, these financial statements have been prepared on going concern basis considering the factors mentioned below:
- The holding company has granted a short term running finance facility to SMEL amounting
to Rs. 150 million (facility renewed on May 17, 2016) out of which Rs. 104.838 million has been utilized as at December 31, 2016. The said facility can be extended to the extent of Rs. 300 million as per the stand-by agreement for finance facility. Holding company has applied for relaxation to the State Bank of Pakistan from the requirements of related party exposure limits in order to continue its support towards SMEL. Further, holding company has been in the list of privatization by Government of Pakistan;
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
129
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
- The management of SMEL has prepared cash flow projections which reflect that based on financial support by the holding company SMEL will be able to continue its business on going concern basis in the foreseeable future;
- Concerted efforts are being made for the recovery of non-performing leases and loans and
finances and in this respect during the year Rs. 54.104 million has been recovered. Further, subsequent to the year ended December 31, 2016, Rs. 0.688 million has been recovered in respect of the non-performing loans till the end of January 31, 2017; and
- Efforts are also being made by the management to reduce the overall cost of SMEL. Based on the above mentioned financial measures and the concerted operational measures
being taken by SMEL, the management is confident of the profitable operations in the foreseeable future and therefore, has prepared the financial statements on going concern basis.
130
2016 20158. CASH AND BALANCES WITH TREASURY BANKS Note
In hand - local currency 72,050 76,660 In transit - local currency - -
National Prize Bonds - 152
With State Bank of Pakistan (SBP) in:Local currency current accounts 8.1 453,513 275,473
With National Bank of Pakistan in:Local currency current accounts 35,319 37,816
560,882 390,101
8.1
2016 20159. BALANCES WITH OTHER BANKS Note
In Pakistan: On current accounts 22,782 1,778 On deposit accounts 9.1 13,883 11,537 Provision for doubtful balance with a bank 9.2 (10,000) (10,000)
26,665 3,315
9.1
9.2
2016 201510. LENDINGS TO FINANCIAL INSTITUTIONS Note
Call money lendings - 400,000 Letter of placement 445,000 485,000
10.1 445,000 885,000
10.1 Particulars of lending
In local currency 10.1.1 445,000 885,000 In foreign currencies - -
445,000 885,000
10.1.1
Bank's deposits with the State Bank of Pakistan are maintained to comply with the statutory requirementsissued from time to time.
These carry interest rate ranging from 3.75% to 4.00% (2015: 1.50 % to 6.50%) per annum.
Provision for doubtful balance is in respect of deposit of Rs. 10 million with Indus Bank Limited which isunder liquidation.
These lendings carry markup rate ranging between 6.15% to 6.30% (2015: 6.50% to 6.95%) per annum andhave maturity period upto 1 month (2015: upto 2 months).
Rupees in '000
Rupees in '000
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
131
11IN
VEST
ME
NT
SN
ote
11.1
INVE
STM
EN
TS
BY T
YPE
S :
Avai
labl
e-fo
r-sal
e se
curit
ies
Mar
ket T
reas
ury
Bills
(MTB
s)11
.356
1,419
1,733
,403
2,
294,
822
87
2,65
1
1,
444,
602
2,
317,
253
Pa
kist
an In
vest
men
t Bon
ds (P
IBs)
11.3
656,
720
1,707
,104
2,36
3,82
4
209,
997
1,37
6,40
1
1,58
6,39
8
Fully
paid
ord
inar
y sh
ares
/mut
ual f
und
64,9
36
-
64
,936
71
,428
-
71
,428
1,283
,075
3,
440,
507
4,
723,
582
1,
154,
076
2,
821,
003
3,
975,
079
H
eld-
to-m
atur
ity se
curit
ies
Term
Dep
osit
Rece
ipts
(TD
Rs)
11.8
35,0
00
-
35
,000
61
,687
-
61
,687
Certi
ficat
es o
f Inv
estm
ents
(CO
Is)
762
-
762
76
2
-
762
35,7
62
-
35
,762
62
,449
-
62
,449
Inve
stm
ents
at c
ost
1,318
,837
3,
440,
507
4,
759,
344
1,
216,
525
2,
821,
003
4,
037,
528
Le
ss: P
rovi
sion
for d
imin
utio
n i
n va
lue
of in
vest
men
ts11
.4(3
8,67
7)
-
(3
8,67
7)
(4
2,56
2)
-
(42,
562)
Inve
stm
ents
net
of i
mpa
irmen
t1,2
80,16
0
3,44
0,50
7
4,72
0,66
7
1,17
3,96
3
2,82
1,00
3
3,99
4,96
6
Net
surp
lus o
n re
valu
atio
n of
a
vaila
ble-
for-s
ale-s
ecur
ities
236,
002
14
,371
20
,373
5,
782
50
,810
56,5
92
T
otal
inve
stm
ents
1,2
86,16
2
3,45
4,87
8
4,74
1,040
1,
179,
745
2,
871,
813
4,
051,
558
2016
2015
Tota
l
Rup
ees i
n '0
00Ru
pees
in '0
00
Hel
d by
the
bank
G
iven
as
colla
tera
l H
eld b
y th
e ba
nk
Giv
en a
s co
llate
ral
Tot
alNotes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201511.2 INVESTMENTS BY SEGMENTS : Note
Federal Government Securities:
- Market Treasury Bills (MTBs) 11.3 2,294,822 2,317,253 - Pakistan Investment Bonds (PIBs) 11.3 2,363,824 1,586,398
4,658,646 3,903,651
Fully paid up ordinary shares:
- Listed companies/mutual fund 11.6 17,493 23,985 - Unlisted companies 11.7 47,443 47,443
64,936 71,428 Other investments:
- Certificates of Investment (COIs) 762 762 - Term Deposit Receipts (TDRs) 11.8 35,000 61,687
35,762 62,449
Total investments at cost 4,759,344 4,037,528
Provision for diminution in value of investments 11.4 (38,677) (42,562)
Investment (net of provision) 4,720,667 3,994,966
Net surplus on revaluation of available for sale securities - net 23 20,373 56,592
Total investments 4,741,040 4,051,558
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
133
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201611.3 Principal terms of investments in Federal Government securities
Name of investment
Market Treasury Bills On maturityOn maturity
2016 201511.4 Particulars of provision for diminution in value of investments Note
Opening balance 42,562 42,562 (Reversal)/charge for the year (3,885) - Closing balance 38,677 42,562
11.4.1 Particulars of provision in respect of type and segmentAvailable-for-sale securities -Fully paid up ordinary shares - Quoted Companies 16,912 20,797 - Unlisted Shares 20,000 20,000 - Delisted Companies 11.7.2 1,003 1,003 Held-to-maturity securities
- Certificates of Investment 762 762 38,677 42,562
NoteRating Market value Rating
11.5 Quality of Available-for-sale securities Rupees '000
Market Treasury Bill 11.5.1 2,292,186 unrated 2,316,915 unratedPakistan Investment Bonds 11.5.1 2,382,102 unrated 1,635,058 unrated
Fully paid up ordinary shares 11.5.2National Refinery Limited - - 3,347 AA+/A1+PICIC Investment Fund Limited 1,914 3-Star 1,573 1-StarLotte Pakistan PTA Limited 664 unrated 519 unratedDewan Salman Fibre Limited 92 unrated 38 unratedPakistan Telecommunication Company Limited 148 unrated 142 unratedNAMCO Balanced Fund - - 4,283 5-StarNishat Chunian Mills Limited 24 unrated 13 A-/A-2Crescent Textile Mills Limited 1 unrated 1 unratedInvest Capital Investment Bank Limited 2,471 unrated 1,543 unrated
5,314 11,459
4,679,602 3,963,432
11.5.1 These are Government of Pakistan guaranteed securities.
11.5.2 Rating of these equity securities represent 'Entity/Funds Rating'.
11.5.3
Coupon/Mark up payment
at maturitysemi-annually
Principal payment
2016 2015
Securities have either been rated by 'The Pakistan Credit Rating Agency Limited' (PACRA) or 'JCR-VIS Credit Rating CompanyLimited' (JCR-VIS). These ratings reflect independent credit risk assessment by respective credit rating entities.
Maturity
6.42% to 12.52%
Rate per annum
Market Treasury Bills and Pakistan Investment Bonds are securities eligible for re-discounting with the State Bank of Pakistan.
July 2017 to August 2017July 2018 to April 2025
5.77% to 6.02%Pakistan Investment Bonds
Market valueRupees '000
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
134
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201611.6 Investments in listed companies/mutual fund
2016 20152016 2015 Name of company/mutual fund Note
- 15,000 - National Refinery Limited - 5,311 137,668 137,668 18.12 PICIC Investment Fund Limited 2,494 2,494 79,775 79,775 10.15 Lotte Chemical Pakistan Limited 810 810 18,449 18,449 18.24 Dewan Salman Fibre Limited 337 337 8,600 8,600 68.20 Pakistan Telecommunication Company Ltd. 586 586
385 385 77.49 Nishat (Chunian) Limited 30 30 18 18 34.84 Crescent Textile Mills Limited 1 1
1,117,876 1,117,876 11.84 Invest Capital Investment Bank Limited 13,236 13,236 Mutual FundNAMCO Balanced Fund - 1,180
17,493 23,985
Impairment in available for sale listed shares 11.6.1 (16,912) (20,797) Investment in listed shares (net of impairment) 582 3,188
Surplus on revaluation of listed shares - (net) 4,730 8,270 Market value as on December 31 5,312 11,458
11.6.1 Impairment in available for sale listed sharesNational Refinery Limited - 3,885 PICIC Investment Fund Limited 2,215 2,215 Lotte Chemical Pakistan Limited 683 683 Dewan Salman Fibre Limited 310 310 Pakistan Telecommunication Company Limited 441 441 Nishat (Chunian) Limited 27 27 Invest Capital Investment Bank Limited 13,236 13,236
16,912 20,797
11.7 Particulars of investments held in unlisted companies, fund and delisted companies
Islamabad Stock Exchange Limited 11.7.1 18,000 18,000 Lahore Stock Exchange Limited 11.7.1 8,440 8,440 AKD Venture Fund 11.7.1 20,000 20,000 Companies delisted from stock exchange 11.7.2 1,003 1,003
47,443 47,443
Rs in '00011.7.1 1% 3,034,603 5.93 11.67 18,000
1% 843,975 10.00 17.64 8,440 Naveed Amin8% 2,000,000 10.00 - 20,000 Sohaib Umar
11.7.1.1
11.7.1.2
Name of Chief
executive% age
Rupees in '000
Management has fully provided the investment in AKD Venture Fund as irrecoverable and impaired.
LSE Financial Services Limited
Mian AyyazAfzal
Paid-up value per share/
average price per unit (Rs)
No. of ordinary shares/units
Number of units held
AKD Venture Fund
ISE Towers REIT Management Co. Ltd--------Rupees--------
Break up value
(11.7.1.2)
Cost/Paid-up value per unit
held
Total paid up value
Break up value per share is based on the audited financial statements of investees for the year ended June 30, 2016.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
135
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201611.7.2 Particulars of investments in shares of companies delisted from stock exchange and are currently under liquidation.
Rupees Rs. in '000
Mohib Exports Company Limited 4,600 23.81 109 Sunflow Citrus Limited 100,000 4.22 422 Tawakal Garments Company Limited 4,000 38.38 154 Tristar Shipping Lines Limited 5,000 23.56 118 Zahoor Textile Mills Limited 15,200 13.16 200
1,003
11.8
Total paid up value
This represents investment in term deposit receipts (TDRs) carrying mark up at the rate of 6.60 % (2015: 6.90 % to 8.20 %) per annum and having maturities upto January 2017 (2015: February 2016).
Cost/Paid-up value per share
Number of shares
held
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
136
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
12. ADVANCES NoteLoans, cash credits, running finances, etc- In Pakistan
Extended by:Defunct SBFC 12.2 4,375,964 4,376,451 Defunct RDFC 12.2 505,341 505,441 SME Group 2,957,392 2,966,735
Due from ex-employees 12.2 16,214 17,534 Due from employees 135,305 121,787
7,990,216 7,987,948
Net investment in finance lease - In Pakistan 12.3 556,641 597,425 Advances - gross 8,546,857 8,585,373
Provision for non-performing advances Specific provision (5,402,106) (5,410,366) General provision (12,391) (8,174)
12.5 (5,414,497) (5,418,540)
Advances - net of provision 3,132,360 3,166,833
12.1 Particulars of Advances (Gross)12.1.1 In local currency 8,546,857 8,585,373
In foreign currencies - - 8,546,857 8,585,373
12.1.2 Short term (upto one year) 1,796,235 1,910,084 Long term (over one year) 6,750,622 6,675,289
8,546,857 8,585,373
20152016Rupees in '000
12.2 Assignment of Non-Performing Loan (NPL) portfolios of defunct SBFC & RDFC to National Bank of Pakistan (NBP)
The Board of the Bank through its resolution by circular No.10/circ/33 dated March 08, 2010 duly endorsed by the members in their meeting dated May 20, 2010 has approved the transfer and assignment of fully non- performing loan portfolios of defunct SBFC & RDFC to NBP on the basis of deferred transfer price. Subsequently transfer and assignment agreement was executed between the Bank and National Bank of Pakistan at Karachi on July 01, 2010 (Effective date). According to the agreement, the transferor (the Bank) and the acquirer (NBP) acknowledge, declare and confirm the transfer, assignment and vesting of all rights, interests, privileges, title, powers and remedies in favour of the acquirer with respect to:
a) the non-performing loans, collateral and the debtors;
b) all agreements, deeds, instruments and other documents relating to the non-performing loans, debtors and collateral and to which the transferor is, or legally deemed to be, a party or a beneficiary;
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
137
c) all legal proceedings by and against the transferor with respect to the non-performing loans, the debtors and collateral, which may be pending before any court, tribunal, arbitrator or authority, without being subject to any liabilities of the transferor to any person.
The agreed transfer price is an amount equal to 50% of the net recoveries.
Under the above referred arrangements, portfolio of defunct SFBC & RDFC outstanding as on June 30, 2010 (Except outstanding loans of RDFC where facility of Equity Participation Fund had also been extended) were transferred to NBP.
On request of the Bank’s management the decision to transfer of the portfolio was revisited by the Bank’s BoD in its 65th meeting held on July 13, 2011 and resolved that the agreement of assignment of the old portfolio to NBP should be cancelled and Board’s pronouncement for revocation of agreement to Ministry of Finance to arrange retrieval/restoration of old portfolio to the Bank in the interest of recovery of public funds.
In the meeting held on March 04, 2013 the Board of Directors reconsidered the position taken earlier on this matter on grounds of related cost of recovery and infrastructure on request of then management and decided that since the Bank is still on the privatization list, BoD would be able to decide on portfolio after Bank’s delisting from privatization.
The incumbent Management has again reviewed the situation and noted that no comparative analysis/study pertaining to transfer of portfolio was conducted which could justify the decision of assigning old portfolio to NBP.
In view of the above, foregoing Board was requested in its 83rd meeting, held on August 30, 2014 and the management of the Bank was allowed to proceed further in pursuance of resolution/direction passed regarding the subject matter in 64th and 65th meeting of the Board of Directors held on May 16, 2011 and July 13, 2011 respectively by overruling to verdict of the Board of Directors given on the issue in 75th Meeting of Board of Directors held on March 04, 2013.
Pending cancellation of transfer and assignment agreement with NBP non- performing loan portfolios of defunct SBFC and RDFC stands recognised in these unconsolidated financial statements. An income of Rs. 9.408 million has been incorporated in these financial statements against the recorded recoveries of non-performing loan portfolios of defunct SBFC and RDFC since their transfer and assignment to NBP till March 2016. The share of income of the Bank has been determined according to transfer price mechanism agreed between the Bank and NBP. The recoveries made thereafter by the Bank from the borrowers of defunct SBFC & RDFC have been recognized as liability to NBP, while the Funds received by NBP to be apportioned in terms of this agreement have not been accounted for by the Bank.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
138
12.3 NET INVESTMENT IN FINANCE LEASE
Lease rentals receivable 49,928 362,640 - 412,568 43,825 392,529 - 436,354 Residual value 31,594 189,102 220,696 53,321 188,027 - 241,348 Minimum lease payments 81,522 551,742 - 633,264 97,146 580,556 - 677,702 Financial charges for future periods (8,283) (68,340) - (76,623) (4,090) (76,187) - (80,277) Present value of minimum lease payments 73,239 483,402 - 556,641 93,056 504,369 - 597,425
12.4
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
Other assets especially mentioned 15,348 - 15,348 25 - 25 25 - 25 Substandard 14,955 - 14,955 1,234 - 1,234 1,234 - 1,234 Doubtful 23,689 - 23,689 238 - 238 238 - 238 Loss 5,685,856 - 5,685,856 5,400,609 - 5,400,609 5,400,609 - 5,400,609
5,739,848 - 5,739,848 5,402,106 - 5,402,106 5,402,106 - 5,402,106
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
Other assets especially mentioned 9,645 - 9,645 - - - - - - Substandard 66,735 - 66,735 61 - 61 61 - 61 Doubtful 66,629 - 66,629 760 - 760 760 - 760 Loss 5,732,755 - 5,732,755 5,409,545 - 5,409,545 5,409,545 - 5,409,545
5,875,764 - 5,875,764 5,410,366 - 5,410,366 5,410,366 - 5,410,366
12.5 Particulars of provision against non-performing advances
Specific General Total Specific General Total
Opening balance 5,410,366 8,174 5,418,540 5,480,108 9,100 5,489,208 Amounts written off - - - (37) - (37) Reversal of provision of transferred portfolio (1,078) - (1,078) (1,789) - (1,789) Charge/(reversals)Charge for the year 49,341 7,088 56,429 54,672 2,594 57,266 Reversal for the year (56,523) (2,871) (59,394) (122,588) (3,520) (126,108)
(7,182) 4,217 (2,965) (67,916) (926) (68,842) Closing balance 5,402,106 12,391 5,414,497 5,410,366 8,174 5,418,540
12.5.1
12.5.2 Specific General Total Specific General Total
In local currency 5,402,106 12,391 5,414,497 5,410,366 8,174 5,418,540 In foreign currencies - - - - - -
5,402,106 12,391 5,414,497 5,410,366 8,174 5,418,540
TotalOver five years
Later than one and less than five years
Total
Rupees in '000Category of Classification
(Rupees in '000) (Rupees in '000)
2016 2015
Not later than one
year
Not later than one
year
Advances include Rs. 5,739.85 million (2015: Rs. 5,875.76 million) which have been placed under non-performing status as detailed below:
Later than one and less
than five years
Over five years
2016Classified Advances Provision Required Provision Held
Category of Classification Rupees in '000
Particulars of provisions against non-performing advances2016 2015
The FSV benefit availed in last years has been reduced by Rs. 84.362 million (2015: Rs.62.193 million) and increased by 31.548 million (2015: 7.686 million)for the Bank and SMEL respectively (net of FSV benefit availed during the year), which has resulted in net increased charge for specific provision for the yearended by the same amount. The FSV benefit is not available for cash or stock dividend/bonus to employees. Had the FSV benefit not recognized, Group'sloss before and after tax for the year ended would have been lower by Rs. 52.814 million (2015: lower by Rs. 54.507 million).
Rupees in '000 Rupees in '000
2015Classified Advances Provision Required Provision Held
Rupees in '000 Rupees in '000
20152016
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
139
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201512.6 Particulars of Write Off: Note
12.6.1 Against provisions 12.5 - 37 Directly charged to Profit & Loss account - -
- 37
12.6.2 Write Offs of Rs. 500,000 and above 12.7 - - Write Offs of below Rs. 500,000 - 37
- 37
12.7 Details of Loan Write Off of Rs. 500,000 and above
12.8 2016 2015Note
Balance at beginning of the year 128,508 102,442 Loans granted/added during the year 65,382 60,984 Repayments - net (38,871) (34,918) Balance at end of the year 155,019 128,508
2016 201513. OPERATING FIXED ASSETS Note
Capital work-in-progress 13.1 2,092 1,054 Property and equipment 13.3 139,194 159,273 Less: Provision held against property and equipment 13.2.1 (32,044) (32,044) Property and equipment - net 107,150 127,229 Intangible assets 13.4 1,264 1,298 Operating Fixed Assets 110,506 129,581
13.1 Capital work-in-progress
This represesnts advances to suppliers and contractors.
13.2 Lease hold land Book value at the beginning of the year 13.2.1 64,087 64,087 Cost of additions during the year - - Book value of the deletions during the year - - Less: Provision held against property and equipment 13.2.1 (32,044) (32,044)
32,043 32,043
Rupees in '000
Rupees in '000
In terms of sub-section 3 of Section 33-A of the Banking Companies Ordinance, 1962 the Statement inrespect of written-off loans or any other financial relief of five hundred thousand rupees or above allowed toa person(s) during the year ended December 31, 2016 is given at Annexure A.
Debts due by directors, executives or officers of thebank or any of them either severally or jointly withany other persons:
Particulars of Loans and Advances to Directors,Associated Companies, Etc. Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
140
13.2.1 This represents the aggregate cost of lands measuring 500 square yards and 4667 square yards located in Islamabad in sectors G-7 and G-5/2 respectively originally allotted to SBFC and RDFC respectively. CDA required payment of Rs. 3.637 million for AGR, delayed charges & extension surcharges. However, on receiving draft of the required amount, CDA returned the same in view of proposed privatization of the Bank. The management of the Bank has taken up the matter with the Privatization Commission Government of Pakistan (PC). Pursuant to which Departmental Audit Committee (DAC) of PC directed the Bank to take up the case of restoration of plots through Ministry of Finance, Government of Pakistan (MOF). Upon management’s perusal and in compliance with directions of DAC, MOF vide its letter dated 12 February 2014 has advised CDA to reconsider the Bank’s request for restoration of the above said land and take steps for early restoration of lands. Management believes that since the Bank is a successor of RDFC and SBFC by virtue of Section 5 of the Amalgamation and Conversion Ordinance, 2001 (the Ordinance), the Bank is legal owner of aforementioned lands and is not required to pay the market value of the plot considering the provisions of the Ordinance and the fact that the lands are in the possession of the Bank also. However, despite the provisions of the Ordinance and being in occupation of the lands, the Bank on the advice of SBP to classify these plots in doubtful category, has recorded an impairment of Rs. 32.044 million. Subsequent to the above, Cabinet Committee on Privatization (CCoP) in its meeting held on January 27, 2017 has directed CDA and MOF for resolution of matter by finalizing the status of rights and claims associated with above plots so as to enable the Bank to accordingly adjust the books of accounts, if required, prior to moving forward with the transaction of the privatization of the Bank. Thus Privatization Commission has excluded the above plots from the privatization transaction by specifically stating it in invitation for expression of interest for acquisition of the Bank’s shares dated February 14, 2017. Due to the above reasons and pending outcome of above review by CDA and MOF, the financial effects of settlement and finalization of rights and claims associated with the referred plots are un-determinable at this stage and therefore adjustments, if any in this respect, have not been recognized in these consolidated financial statements.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
141
13.3
PRO
PER
TY
AND
EQ
UIP
ME
NT
Leas
e ho
ld la
nd
64,0
87
-
-
-
64
,087
32
,044
-
-
-
32
,044
32
,043
-
Leas
e ho
ld im
prov
emen
ts33
,886
-
36
8
-
31
,962
22
,924
-
5,
766
(2
05)
26,3
97
5,56
5
33 1
/3(2
04)
(2,0
88)
2,08
8
Build
ings
25,3
08
-
-
-
25
,308
11
,771
-
1,26
4
-
13
,035
12,2
73
5
Offi
ce fu
rnitu
re a
nd fi
xtur
es11
,496
-
49
6
-
10
,695
9,
173
-
586
(8
95)
8,
463
2,
232
20
(896
)
(4
01)
401
O
ffice
equ
ipm
ent
62,2
97
-
1,08
4
-
61,6
47
30,4
45
-
6,
653
(6
13)
35
,366
26,2
81
15
(615
)
(1
,119
)
1,11
9
Com
pute
r equ
ipm
ent
95,0
72
-
1,04
2
-
93,6
56
81,0
42
-
8,
554
(1
,212
)
87
,139
6,51
7
33 1
/3(1
,213
)
(1,2
45)
1,24
5
Veh
icles
56,5
22
1,73
3
10
,969
-
66
,818
36
,406
1,
126
8,
558
(5
03)
45
,563
21,2
55
20
(2,3
82)
(2
4)
-
24
348,
668
1,
733
13,9
59
-
354,
173
223,
805
1,12
6
31,3
81
(3
,428
)
24
8,00
7
10
6,16
6
(5,3
10)
(4
,877
)
-
4,
877
Veh
icles
5,42
3
(1
,733
)
-
-
3,
690
3,
056
(1
,126
)
776
-
2,70
6
984
2035
4,09
1
-
13
,959
357,
863
226,
861
-
32
,157
(3,4
28)
250,
713
107,
150
(5
,310
)
(4,8
77)
-
4,
877
13.4
INT
ANG
IBLE
ASS
ET
SCO
ST
(Dis
posa
ls)
Com
pute
r sof
twar
e27
,692
-
84
7
-
28
,539
26,3
96
-
879
-
27,2
75
1,2
64
33 1
/3
Net
boo
k va
lue
as a
t D
ec 3
1, 20
16Ad
just
men
t
COST
Tra
nsfe
rAs
at
Janu
ary
01,
2016
Addi
tions
/(d
ispo
sals)
As a
t Ja
nuar
y 01
, 20
16T
rans
fer
Addi
tions
Tra
nsfe
rAs
at
Dec
embe
r 31
, 201
6Ad
just
men
ts
DE
PRE
CIAT
ION
/ IM
PAIR
ME
NT
Asse
ts h
eld
unde
r fin
ance
le
ase
Rup
ees i
n '0
00
Rup
ees i
n '0
00
Dep
reci
atio
n ra
te p
er
annu
m %
Net
boo
k va
lue
as a
t D
ecem
ber 3
1, 20
16
As a
t Ja
nuar
y 01
, 20
16
As a
t
D
ecem
ber
31, 2
016
Amor
tizat
ion
rate
per
an
num
%
Char
ge fo
r the
ye
ar/
impa
irmen
t
Char
ge fo
r the
ye
ar/
impa
irmen
t
Tra
nsfe
rAs
at
Janu
ary
01,
2016
As a
t
D
ecem
ber
31, 2
016
(Dis
posa
ls)
AMO
RT
ISAT
ION
As a
t
D
ecem
ber
31, 2
016
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
142
PRO
PER
TY
AND
EQ
UIP
ME
NT
Leas
e ho
ld la
nd
64,0
87
-
-
-
64
,087
32
,044
-
-
-
32,0
44
32,0
43
-
Leas
e ho
ld im
prov
emen
ts33
,517
-
1,22
8
-
33
,884
20
,206
-
5,96
2
-
25
,347
8,
537
33
1/3
(40)
(8
21)
82
1
Bu
ildin
gs25
,308
-
-
-
25,3
08
8,55
7
-
829
(40)
9,34
6
15,9
62
5
Offi
ce fu
rnitu
re a
nd fi
xtur
es11
,773
-
1,87
0
-
11
,496
10
,976
-
344
(8)
9,
173
2,
323
20
(8)
(2
,139
)
2,
139
Li
brar
y10
-
-
(10)
-
10
-
-
10
-
-
20O
ffice
equ
ipm
ent
60,4
48
-
3,
649
-
62,2
97
25,1
81
-
7,
063
(8
29)
30,4
45
31,8
52
15
(830
)
(9
70)
97
0
Co
mpu
ter e
quip
men
t10
0,53
8
-
725
-
95
,071
78
,817
-
8,41
6
(1,1
14)
81
,041
14
,030
33 1
/3(1
,114
)
(5,0
78)
5,07
8
Veh
icles
55,5
85
950
11
,408
56
,521
40
,160
49
1
5,
211
(9
,367
)
36,4
03
20,1
18
20
(11,
330)
(9
2)
-
92
35
1,26
6
95
0
18,8
80
-
34
8,66
4
21
5,95
1
49
1
27,8
25
(1
1,35
8)
223,
799
12
4,86
5
(13,
322)
(9,1
10)
9,
110
Veh
icles
10,7
52
(950
)
-
-
5,
423
6,
067
(4
91)
1,
862
(4
,379
)
3,
059
2,
364
20(4
,379
)
362,
018
-
18
,880
-
354,
087
222,
018
-
29
,687
(15,
737)
22
6,85
8
127,
229
(1
7,70
1)
(9,1
10)
9,11
0
INT
ANG
IBLE
ASS
ET
SCO
ST
(Disp
osals
)
Com
pute
r sof
twar
e28
,888
-
939
-
27
,693
27
,774
-
755
-
26
,395
1,
298
33
1/3
(2,1
34)
2,13
4
28,8
88
-
93
9
27,6
93
27,7
74
-
75
5
26
,395
1,
298
(2
,134
)
2,
134
Net
boo
k va
lue
as a
t Dec
31,
20
15
As a
t
D
ecem
ber
31, 2
015
Net
boo
k va
lue
as a
t Dec
embe
r 31
, 201
5
Am
ortiz
atio
n ra
te p
er a
nnum
%
AM
ORT
ISA
TIO
NA
s at
Janu
ary
01,
2014
Tran
sfer
Add
ition
sA
djus
tmen
tA
s at
Dec
embe
r 31
, 201
5
As a
t Ja
nuar
y 01
, 20
14Tr
ansf
erCh
arge
for t
he
year
/im
pairm
ent
Rupe
es in
'000
Asse
ts h
eld
unde
r fin
ance
le
ase
Dep
recia
tion
rate
per
ann
um
%Ru
pees
in '0
00
COST
DE
PRE
CIA
TIO
N/
IMPA
IRM
EN
TA
s at
Janu
ary
01,
2015
Tran
sfer
Add
ition
s/(d
ispos
als)
Adj
ustm
ents
As a
t
D
ecem
ber
31, 2
015
As a
t Ja
nuar
y 01
, 20
15Tr
ansf
erCh
arge
for t
he
year
/im
pairm
ent
(Disp
osals
)A
s at
Dec
embe
r 31
, 201
5Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
143
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201613.5
VehiclesToyota Corolla 2,014 134 1,880 2,047 M/S United Insurance Co.
Suzuki 365 365 - 338 Tender Abrar Hussain
2,379 499 1,880 2,385
2,931 2,929 2 140 2016 5,310 3,428 1,882 2,525 2015 17,701 15,737 1,964 3,707
13.6
Details of disposal of fixed assets :Book value
Particulars of assets Cost Mode of disposal Particulars of buyersAccumulated
depreciation
Gross carrying amount of fully depreciated assets that are still in use was Rs. 157.817 million (2015: Rs. 156.668 million).
Rupees in '000
Sale proceeds
Other assets havingbook value of lessthan Rs. 250,000 orcost less than ofRs.1,000,000 whichever is less
Insurance claim for accident
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
144
2016
2015
14.
DE
FER
RE
D T
AX A
SSE
T -
NE
TN
ote
Def
erre
d ta
x as
set a
risin
g in
resp
ect o
f:A
ccele
rate
d ta
x de
prec
iatio
n an
d am
ortiz
atio
n-
(1
,092
)
Una
bsor
bed
depr
eciat
ion
and
amor
tizat
ion
51,3
15
-
Unu
sed
tax
loss
es21
2,91
5
1,
092
14.1
264,
230
-
Def
erre
d ta
x (li
abili
ty)/
asse
t aris
ing
in re
spec
t of:
Surp
lus o
n re
valu
atio
n of
inve
stm
ent
(8,0
53)
-
14
.225
6,17
7
-
14.1
14.2
Rec
onci
liatio
n of
def
erre
d ta
x Ba
lanc
e R
ecog
nize
dR
ecog
nize
dBa
lanc
e at
R
ecog
nize
dR
ecog
nize
dBa
lanc
e at
at J
anua
ry 1,
in p
rofit
and
in
Dec
embe
r 31,
in p
rofit
and
in
Dec
embe
r 31,
2015
loss
acc
ount
Equ
ity20
15lo
ss a
ccou
ntE
quity
2016
Def
erre
d ta
x as
set a
risin
g in
resp
ect o
f:A
ccele
rate
d ta
x de
prec
iatio
n &
am
ortiz
atio
n-
-
-
-
51
,315
-
51
,315
U
nuse
d ta
x lo
sses
-
-
-
-
212,
915
-
212,
915
-
-
-
-
264,
230
-
264,
230
Def
erre
d ta
x lia
bilit
y ar
isin
g in
resp
ect o
f:Su
rplu
s on
reva
luat
ion
of in
vest
men
t-
-
-
-
-
(8
,053
)
(8,0
53)
D
efer
red
tax
(liab
ility
)/as
set -
net
-
-
-
-
26
4,23
0
(8
,053
)
256,
177
2016
2015
14.3
394,
828
681,
766
Rup
ees i
n '0
00
Rup
ees i
n '0
00
Rup
ees i
n '0
00Te
mpo
rary
diff
eren
ces f
or w
hich
no
defe
rred
tax
asse
t is r
ecog
nize
d du
e to
unc
erta
in ti
min
g of
futu
re ta
xabl
e pr
ofits
The
Bank
hasr
ecog
nize
dth
ede
ferr
edta
xas
set,
whi
chre
pres
ents
man
agem
ent’s
best
estim
ate
ofth
epr
obab
lebe
nefit
sexp
ecte
dto
bere
alize
din
futu
reye
arsi
nth
efo
rmof
redu
ced
tax
liabi
lity
asth
eBa
nkw
ould
beab
leto
seto
ffth
epr
ofits
earn
edin
thos
eye
ars
again
stlo
sses
carr
iedfo
rwar
d.Th
eun
derly
ing
assu
mpt
ion
forr
ecog
nitio
nof
defe
rred
tax
asse
tis
the
expe
cted
priv
atiz
atio
nof
the
Bank
whi
chw
ould
resu
ltin
fres
heq
uity
injec
tion
from
the
new
stra
tegi
csh
areh
olde
rof
the
Bank
asde
taile
din
Not
e7.
4to
the
cons
olid
ated
finan
cials
tate
men
tsan
d,in
view
ofab
ove,
the
man
agem
ento
fthe
Bank
belie
ves
that
itis
prob
able
that
the
Bank
will
beab
leto
achi
eve
the
prof
itsan
d,co
nseq
uent
ly,th
ede
ferr
edta
x as
sets
will
be
fully
reali
zed
in fu
ture
.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
145
SME BANK LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
Restated2016 2015
15. OTHER ASSETS NoteIncome/ mark-up accrued in local currency 15.1 140,000 142,493 Advances, deposits, advance rent and other prepayments 58,045 52,059 Non banking asset acquired in satisfaction of claims 15.2 147,066 138,600 Due from benevolent fund- unsecured 36.4.2 1,658 321 Receivable from NBP 4,690 - Receivable from Equity Participation Fund 2,561 1,354 Trading right entitlement certificate 15.3 21,560 21,560 Receivable from Speedway Fondmetall Pakistan Limited 19,640 19,640 Receivable against factorized portfolio 6,048 6,048 Asset held for sale - 3,980 Others 68,703 66,930
469,971 452,985 Less: Provision held against other assets 15.4 100,129 97,570 Other assets (net of provision) 369,842 355,415
15.115.2
2016 201515.3 Trading right entitlement certificate Note
LSE Financial Services Limited (formaly Lahore Stock Exchange) 15.3.1 21,560 21,560 ISE Towers REIT Management Company Limited (formaly Islamabad Stock Exchange) 15.3.1 - -
21,560 21,560
15.3.1
Rupees in '000
This includes Rs. 138.6 million being the successful bid made by SME Bank for acquiring Bungalow No. 45, Block-C/3, Gulberg III, Lahore mortgaged with the Bank as a security in a defaulted loan and Rs. 4.2 million pertainingstamps/stamps duties for registration of sale certificate issued by the High Court to SME Bank/ Auction Purchaser ofBungalow No. 45, Block-C/3, Gulberg III, Lahore. The auction was carried out on 30 June 2015, subsequent to theauction, the Honourable Lahore High Court through its decision dated 14 July 2015 allowed the Bank to adjust the bidprice against its outstanding dues from the borrower against the finance facilities extended to the borrower, suspendedmark-up and cost of funds. The auction was confirmed by the High Court on April 19, 2016 after hearing objectionraised by the counter party. The sale certificate was issued by the High Court on June 30, 2016 and the same has beenregistered with concerned registrar on July 28, 2016. Ownership of the house in record of Excise and TaxationDepartment has been transferred in name of SME Bank Ltd. The Bank applied for possession of the acquired house,which has been accepted by the court after hearing both the parties. The court has issued order to bailiff for takingpossession of the house to handover the Bank. Possession of the said property has not yet been handed over to theBank. The market value of property is Rs. 171.2 million (2015: Rs. 160 million).
This balance has been arrived at after adjusting interest in suspense of Rs. 4,057.57 million (2015: Rs. 4,053.86 million).
In accordance with the requirements of the Stock Exchanges (Corporatization, Demutualization and Integration) Act2012 (the Act) during the year 2012, the Bank received equity shares and one Trading Right Entitlement certificateeach in lieu of its membership cards in Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE).
Based on the revalued assets and liabilities of LSE and ISE, a total of 843,975 ordinary shares of Rs. 10 each and3,034,603 ordinary shares of Rs. 10 each in the corporatized and demutualized LSE and ISE respectively were allottedto the Bank in a dematerialized form. Out of the aforementioned, 337,590 ordinary shares in LSE and 1,213,841ordinary shares in ISE (i.e. 40 percent) have been received in the Bank’s CDC participant account whereas 506,385ordinary shares in LSE and 1,820,762 ordinary shares in ISE (i.e. 60 percent) have been held in the blocked subaccounts maintained under LSE and ISE participant ID with Central Depository Company of Pakistan Limited. Therights attached to 60% shares held in blocked account shall be dealt with in accordance with the provisions containedin the Act. The blocked account shall be operated by the Board of Directors of the stock exchanges in the mannerprescribed by the Securities and Exchange Commission of Pakistan.
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
146
SME BANK LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
Restated2016 2015
15.4 Provision against other assetsOpening balance 97,570 88,184 Charge for the year 2,586 10,556 Reversals (67) (1,200)
2,519 9,356 Transferred to NBP 40 30 Closing balance 100,129 97,570 Provision balance is in respect of:Income/mark-up accrued in local currency:
Receivable from Universal Leasing Limited 22 22 Receivable from Speedway Fondmetall Pakistan Limited 19,640 19,640
Receivable against factorized portfolio 6,048 6,048 Other receivables - SME Portfolio 41,232 39,691 Legal charges recoverable from borrowers - SBFC & RDFC 22,630 22,213 Trading right entitlement certificate - TREC 5,390 5,390 Others 5,167 4,566
100,129 97,570
Rupees in '000
In case of LSE, par value of shares received by the Bank was recognised during the year ended December 31, 2012 asavailable for sale investment and the excess of value of shares over the carrying value of membership card in LSE wasrecognised as trading right. However, in case of ISE, since the par value of shares received by the Bank was more thanthe carrying value of membership card, investment in ISE has been recognised to the extent of the carrying value ofmembership card and trading right in ISE has been recognised at nil value.Pursuant to provisions of the Act the Bank’s trading rights in LSE and ISE have lapsed on August 26, 2014. In view ofabove the SBP required the Bank to classify these rights under sub-standard category due to remote chances of theirrecovery that resulted into recognition of provision in the March 2015 of Rs. 5.39 million representing 25% of grosscarrying values of these rights. The management of the Bank in collaboration with other financial institutions affectedby the same cause is pursuing the concerned authorities for the reinstatement of these rights.
15.5
The effects of restatement has been limited to line items as presented below:
Note As previously
reported Adjustment As currently reported
December 31, 2015Consolidated statement of financial position
Other assets 15 356,489 (1,074) 355,415 Provision held against other assets 15.4 96,496 1,074 97,570 Total shareholders' equity 352,024 (786) 351,238 Non-controlling interest (NCI) 24 52,765 (288) 52,477
Consolidated profit and loss account15.4 8,282 1,074 9,356 33 (1.23) (0.01) (1.24) Consolidated loss per share - basic and diluted
The management of SMEL has identified that it has not recorded provision against other receivables in prior year.The SMEL, therefore, has retrospectively rectified the error by restating the amount for provision held against otherassets and accumulated loss as reported in the consolidated fianacial position as at December 31, 2015 and otherprovisions as reported in the profit and loss account for the year ended December 31, 2015.
Rupees in '000
Other provisions/write offs
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
147
2016 201516. BILLS PAYABLE Note Rupees in '000
In Pakistan 95,443 114,107 Outside Pakistan - -
95,443 114,107
2016 201517. BORROWINGS Note Rupees in '000
In Pakistan 3,460,699 2,889,058 Outside Pakistan - -
3,460,699 2,889,058 17.1 Particulars of borrowings with respect to currencies
In local currency 3,460,699 2,889,058 In foreign currencies - -
3,460,699 2,889,058
17.2 Details of borrowings secured/unsecuredBorrowings from State Bank of Pakistan - unsecure 17.2.1 31,515 48,892 Repurchase agreement borrowings - secured 17.2.2 3,428,811 2,839,793 Long term finance - secured 17.2.3 373 373
3,460,699 2,889,058
17.2.1
17.2.2
17.2.3
2016 201518. DEPOSITS AND OTHER ACCOUNTS Rupees in '000
CustomersFixed deposits 1,001,313 1,046,304 Savings deposits 2,861,928 2,505,838 Current accounts - non-remunerative 596,943 465,904 Margin accounts 33,730 34,946
4,493,914 4,052,992 Financial Institutions
Remunerative deposits 18.2 733,061 715,760 Non-remunerative deposits - -
5,226,975 4,768,752 18.1 Particulars of deposits
In local currency 5,226,975 4,768,752 In foreign currencies - -
5,226,975 4,768,752 18.2
These represent transactions with financial institutions for sale of Government Securities under re-purchase agreement (REPO) in the inter bank money market at mark-up rates ranging from 6.10% to6.25% (Dec 31, 2015: 6.20% to 6.50%) per annum for period upto two month (Dec 31, 2015: uptotwo month). REPO transactions are secured against investment of the Bank in Governmentsecurities.
This represents financing facility obtained from State Bank of Pakistan under the scheme "FinancingFacility For Storage of Agri Produce (FFSAP)" vide SMEFD circular No. 08 dated June 04, 2010 &IH&SSMEFD circular No. 05 dated Feb 23, 2015. These carry revised mark up rate of 2.50 % &3.25% respectively and is repayable in quarterly instalments.
Remunerative deposits include Rs. 380.094 million (Dec 31, 2015: Rs. 365.757 million) related toEquity Participation Fund.
This represents balance due against financing facilities from National Energy Conservation Centre(Enercon) by SMEL. The facilities from Enercon have been obtained under an agreement wherebythey have agreed to provide funds to SME Leasing for granting lease/finance facility to its customersfor procuring and using energy efficient equipments. The facility carries mark-up at the rate of 5%(2015: 5%) per annum payable on quarterly basis subject to the condition that the SMEL will providelease/finance facility to its customers at a preferential mark-up rate.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
148
2016 201516. BILLS PAYABLE Note Rupees in '000
In Pakistan 95,443 114,107 Outside Pakistan - -
95,443 114,107
2016 201517. BORROWINGS Note Rupees in '000
In Pakistan 3,460,699 2,889,058 Outside Pakistan - -
3,460,699 2,889,058 17.1 Particulars of borrowings with respect to currencies
In local currency 3,460,699 2,889,058 In foreign currencies - -
3,460,699 2,889,058
17.2 Details of borrowings secured/unsecuredBorrowings from State Bank of Pakistan - unsecure 17.2.1 31,515 48,892 Repurchase agreement borrowings - secured 17.2.2 3,428,811 2,839,793 Long term finance - secured 17.2.3 373 373
3,460,699 2,889,058
17.2.1
17.2.2
17.2.3
2016 201518. DEPOSITS AND OTHER ACCOUNTS Rupees in '000
CustomersFixed deposits 1,001,313 1,046,304 Savings deposits 2,861,928 2,505,838 Current accounts - non-remunerative 596,943 465,904 Margin accounts 33,730 34,946
4,493,914 4,052,992 Financial Institutions
Remunerative deposits 18.2 733,061 715,760 Non-remunerative deposits - -
5,226,975 4,768,752 18.1 Particulars of deposits
In local currency 5,226,975 4,768,752 In foreign currencies - -
5,226,975 4,768,752 18.2
These represent transactions with financial institutions for sale of Government Securities under re-purchase agreement (REPO) in the inter bank money market at mark-up rates ranging from 6.10% to6.25% (Dec 31, 2015: 6.20% to 6.50%) per annum for period upto two month (Dec 31, 2015: uptotwo month). REPO transactions are secured against investment of the Bank in Governmentsecurities.
This represents financing facility obtained from State Bank of Pakistan under the scheme "FinancingFacility For Storage of Agri Produce (FFSAP)" vide SMEFD circular No. 08 dated June 04, 2010 &IH&SSMEFD circular No. 05 dated Feb 23, 2015. These carry revised mark up rate of 2.50 % &3.25% respectively and is repayable in quarterly instalments.
Remunerative deposits include Rs. 380.094 million (Dec 31, 2015: Rs. 365.757 million) related toEquity Participation Fund.
This represents balance due against financing facilities from National Energy Conservation Centre(Enercon) by SMEL. The facilities from Enercon have been obtained under an agreement wherebythey have agreed to provide funds to SME Leasing for granting lease/finance facility to its customersfor procuring and using energy efficient equipments. The facility carries mark-up at the rate of 5%(2015: 5%) per annum payable on quarterly basis subject to the condition that the SMEL will providelease/finance facility to its customers at a preferential mark-up rate.
19. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE
Rupees in '000Not later than one year 607 6 601 1,477 103 1,374 Later than one year and not later than five years - - - 607 6 601 Over five years - - - - - -
607 6 601 2,084 109 1,975
2016 201520. OTHER LIABILITIES Note
Mark-up/ return/ interest payable in local currency 50,250 58,918 Unearned commission on guarantees 1,367 1,567 Accrued expenses 9,289 9,083 Income tax payable 4,761 5,926 Accounts payable 7,662 12,762 Sundry creditors 20.1 118,847 117,325 Payable to NBP 12.2 - 5,229 Branch adjustment account 1,099 4,860 Payable against employees' benefit plans
Defined benefit pensionThe Bank 36.1.2 211,427 112,383
Defined benefit unfunded gratuity schemeThe Bank 36.2.2 67,626 53,821 SMEL 36.5.2 5,153 4,891
Unfunded compensated absencesThe Bank 36.3.3 72,245 77,399 SMEL 2,102 1,070
Payable on termination/maturity of lease 316 1,172 Security deposits against lease 220,696 241,348 Employees' VSS payments withheld 20.2 13,474 14,026 Income tax withheld payable 18,099 18,911 Others 5,233 7,746
809,646 748,437
20.1
20.2
Principal outstanding
Minimum lease
payments
Minimum lease
payments
Financial charges for
future periods
Principal outstanding
Rupees in '000
Employees VSS payments of Rs. 13.474 million (2015: Rs. 14.026 million) has been withheld due to legal casespending in the courts against employees, filed by the Bank and ex-employees.
2016 2015
This represents liability against vehicle lease agreements of SMEL with leasing companies & commercial banks.Monthly lease rentals are payable including financial charges at 14.39% to 15.10% (2015: 14.39% and 15.10%) perannum. This finance lease arrangements will mature in the year 2017. The purchase option is available with theGroup at the time of payment of the last installment or surrender of deposit money under the lease agreements.
This includes amount of Rs. 90.6 million (2015: Rs. 90.6 million) payable either to SBP or FBR on VSS paymentsrelated to pension on finalization of tax assessment of financial year 2009.
Financial charges for
future periods
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
149
19. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE
Rupees in '000Not later than one year 607 6 601 1,477 103 1,374 Later than one year and not later than five years - - - 607 6 601 Over five years - - - - - -
607 6 601 2,084 109 1,975
2016 201520. OTHER LIABILITIES Note
Mark-up/ return/ interest payable in local currency 50,250 58,918 Unearned commission on guarantees 1,367 1,567 Accrued expenses 9,289 9,083 Income tax payable 4,761 5,926 Accounts payable 7,662 12,762 Sundry creditors 20.1 118,847 117,325 Payable to NBP 12.2 - 5,229 Branch adjustment account 1,099 4,860 Payable against employees' benefit plans
Defined benefit pensionThe Bank 36.1.2 211,427 112,383
Defined benefit unfunded gratuity schemeThe Bank 36.2.2 67,626 53,821 SMEL 36.5.2 5,153 4,891
Unfunded compensated absencesThe Bank 36.3.3 72,245 77,399 SMEL 2,102 1,070
Payable on termination/maturity of lease 316 1,172 Security deposits against lease 220,696 241,348 Employees' VSS payments withheld 20.2 13,474 14,026 Income tax withheld payable 18,099 18,911 Others 5,233 7,746
809,646 748,437
20.1
20.2
Principal outstanding
Minimum lease
payments
Minimum lease
payments
Financial charges for
future periods
Principal outstanding
Rupees in '000
Employees VSS payments of Rs. 13.474 million (2015: Rs. 14.026 million) has been withheld due to legal casespending in the courts against employees, filed by the Bank and ex-employees.
2016 2015
This represents liability against vehicle lease agreements of SMEL with leasing companies & commercial banks.Monthly lease rentals are payable including financial charges at 14.39% to 15.10% (2015: 14.39% and 15.10%) perannum. This finance lease arrangements will mature in the year 2017. The purchase option is available with theGroup at the time of payment of the last installment or surrender of deposit money under the lease agreements.
This includes amount of Rs. 90.6 million (2015: Rs. 90.6 million) payable either to SBP or FBR on VSS paymentsrelated to pension on finalization of tax assessment of financial year 2009.
Financial charges for
future periods
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
150
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
21. SHARE CAPITAL
21.1 Authorized Capital
2016 2015 2016 2015Rupees in '000
1,000,000,000 1,000,000,000 Ordinary shares of Rs. 10 each 10,000,000 10,000,000
21.2 Issued, subscribed and paid up capital
2016 2015 Ordinary shares
152,853,153 152,853,153 Fully paid in cash 1,528,532 1,528,532 50,000,000 50,000,000 Issued as bonus shares 500,000 500,000 36,397,547 36,397,547 Issued for consideration other than cash 363,975 363,975
239,250,700 239,250,700 2,392,507 2,392,507
Number of21.3 Break-up of share capital is as follows: shares
Federal Government 224,615,978 93.88 2,246,160 2,246,160 National Bank of Pakistan 6,121,095 2.56 61,211 61,211 United Bank Limited 3,975,003 1.66 39,750 39,750 Habib Bank Limited 1,987,501 0.83 19,875 19,875 MCB Bank Limited 1,490,619 0.62 14,906 14,906 Allied Bank Limited 774,351 0.33 7,744 7,744 Industrial Development Bank Limited 286,146 0.12 2,861 2,861 Directors 7 - - -
239,250,700 100 2,392,507 2,392,507
22. RESERVES
Statutory Un-appropriated Reserve Future loss loss
Balance at beginning of the year - restated 227,019 7,641 (2,275,929) (2,041,269) Total comprehensive income/(loss) transferred to equity - - (362,517) (362,517) Balance at end of the year 227,019 7,641 (2,638,446) (2,403,786)
Statutory Reserve against Un-appropriated Reserve Future loss loss
Balance at beginning of the year 227,019 7,641 (1,939,100) (1,704,440) Total comprehensive income/(loss) transferred to equity - restated - - (336,829) (336,829) Balance at end of the year - restated 227,019 7,641 (2,275,929) (2,041,269)
22.1
Rupees in '000
2016
2015
As at December 31, 2016, the Bank and SMEL has availed net of tax benefit of Forced Sales Value (FSV) of Rs. 152.784 and162.738 million respectively (2015: Rs. 237.146 and 131.190 million) in respect of pledged stocks, mortgaged residential,commercial, industrial properties (land and building only) and plant and machinery under charge held as collateral against non-performing assets. Reserves and un-appropriated profit to that extent are not available for distribution by way of cash, stockdividend or bonus to employees.
Percentage
Reserve against Total
Rupees in '000
Total
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
151
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
2016 201523. SURPLUS ON REVALUATION OF ASSETS Rupees in '000
Surplus/(Deficit) on revaluation of available-for-sale securitiesFederal Government securities
- Market Treasury Bills (MTBs) (2,635) (338) - Pakistan Investment Bonds (PIBs) 18,278 48,660
15,643 48,322 Fully paid up ordinary shares/units
- Listed companies/mutual funds 4,730 8,270
20,373 56,592 - Deferred tax (8,053) -
12,320 56,592 Non-controlling interest - (833)
12,320 55,759
152
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
24. NON-CONTROLLING INTEREST- (NCI)
NCI Percentage 26.859% 26.859%
Restated2016 2015
ASSETSCurrent assetsCash and bank balances 2,519 3,115 Advances 2,668 2,484 Deposits, prepayments and other receivables 1,544 557 Accrued interest on loans 4 14 Investments - 4,283 Asset held for sale - 3,980 Current maturity of non-current assets 407,980 432,784
414,715 447,217 Non-current assetsLong term finances and loans 7,253 17,381 Net investment in finance leases 71,987 91,803 Long term deposits and prepayments 1,164 1,543 Fixed assets 8,648 9,298
89,052 120,025 Total Assets 503,767 567,242
LIABILITIESCurrent liabilitiesAccrued and other liabilities 4,166 6,067 Accrued mark-up on borrowings 960 1,171 Short term borrowings 104,839 129,066 Current maturity of non-current liabilities 190,076 189,775 Provision for compensated absences 2,102 1,070 Provision for taxation - net 8,201 8,187
310,344 335,336 Non-current liabilitiesLiabilities against assets subject to finance lease - 601 Long term deposits 31,314 53,041 Deferred liabilities 5,153 4,891
36,467 58,533
Total liabilities 346,811 393,869 NET ASSETS 156,956 173,373
Carrying Amount of NCI 42,157 46,567
Adjustments: Share premium specifically allocable to NCI 5,910 5,910
48,067 52,477
Rupees in '000
The following table summarises the information relating to the subsidiary (SME Leasing) having the NCI
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
153
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
Restated2016 2015
Revenue 37,415 27,889 Loss for the year (13,382) (18,386) Other comprehensive income 68 1,285 Total comprehensive income (13,314) (17,101) Loss attributable to NCI (3,594) (4,938)
(816) 345
Cash flows from operating activities 16,425 26,536 Cash flows from investment activities 8,699 (395) Cash flows from financing activities, before dividends to NCI (1,493) (2,292) Cash flows from financing activities-cash dividends to NCI - - Net increase/(decrease) in cash and cash equivalents 23,632 23,849
SME Leasing Limited has its principal place of business in Pakistan.
Other comprehensive income allocated to NCI
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
154
2016 201525. CONTINGENCIES AND COMMITMENTS Note Rupees in '00025.1 Transaction-related contingent liabilities
Guarantees in favour of:Government 25.1.1 153,246 178,737 Others - -
153,246 178,737
25.1.1
2016 201525.2 Other Contingencies Rupees in '000
a) 56,857 22,826 b)
49,800 49,800 c)
10,000 15,000 d)
612,707 612,707
e)
6,163 13,505 f)
211,716 211,716 g) 130,310 113,260
25.3 Commitments in respect of forward lendingCommitments to extend credit 40,700 126,450 Commitments for lease disbursement 2,300 14,467
25.4 Commitments for the acquisition of operating fixed assets 13,963 9,053 25.5 Commitments against repo/reverse repo transactions
Sale and repurchase agreements 3,454,878 2,871,813 25.6 Other commitments
Undrawn facilities 106,375 151,813 25.7 Bills for collection
Payable in Pakistan 91 50
Back benefits and claims of staff/employees under litigation.
The Bank and the income tax department have filed an appeal before theAppellate Tribunal Inland Revenue against the appellate order of theCommissioner (Appeals), who had partly set aside the order of the Taxationofficer, resulting in taxable income of Rs. 151.2 million and tax liability of Rs.52.9 million against the declared tax loss of Rs. 23.5 million and tax liability ofRs. 4.2 million for the tax year 2008. Without prejudice to the appeal, thedemand has been paid by the Bank; however no provision has been made inthese financial statements as the management is confident of a favorableoutcome.
Claims not acknowledged as debt from various borrowers
Damages claimed by an ex-employee of the then RDFC involved in RaviSecurities (Pvt) Limited and Taas Securities (Pvt) Limited affairs and a directorof Ravi Securities (Pvt) Limited and Taas Securities (Pvt) Limited notacknowledged as debt.
Damages claim by borrower for delay in recording repayments received fromborrower, not acknowledged as debt.
Tax demands of Rs. 612.707 million raised by the Income Tax Authoritiesrelated to VSS staff cost (tax year-2005) has been decided in favour of theBank. However tax authorities have filed appeal before ATIR against thedecision of the Commissioner Income Tax (Appeals). The management of theBank strongly believes and expects favourable outcome and therefore noprovision has been made for this effect in the financial statements.
The Bank is in appeal before the Appellate Tribunal Inland Revenue againstthe amended assessment order for the tax year 2010, whereby the taxationofficer had assessed income of Rs. 636.5 million and tax liability of Rs. 222.7million as against income of Rs. 7.5 million and tax liability of Rs. 3.9 millionadmitted by the Bank. The CIR(A) decided the appeal partly in the Bank'sfavor while setting aside certain matters. The re-assessment has not yet beenfinalized by the taxation officer. The department has also filed an appealbefore Appellate Tribunal Inland Revenue against the order of Commissioner(Appeals). The appeals have not yet been fixed for hearing.
This includes expired letters of guarantees aggregating to Rs. 18.866 million (2015: 54.986 million) for which formalities forreturn of original documents are in process.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
155
2016 201526. MARK-UP/ RETURN/ INTEREST EARNED Note Rupees in '000
On loans and advances to customers 281,023 375,526 On investment in finance lease to customers 23,067 21,239
304,090 396,765 On loans and advances to employees 5,702 4,742
309,792 401,507 On investments in
Available for sale securities 288,864 283,537 Held to maturity securities 2,604 4,388
291,468 287,925 On deposits with financial institutions 138 195 On securities purchased under resale agreements 252 1,157 On clean lending 29,691 17,156 On call money lending 3,304 7,719
634,645 715,659
27. MARK-UP/RETURN/INTEREST EXPENSED
On deposits 277,140 285,020 On securities sold under repurchase agreements 161,056 145,125 On SBP Refinance Scheme 192 2,802 Brokerage and commission 2,564 3,005 Bank charges 414 535
441,366 436,487
28. GAIN ON SALE OF SECURITIES - NET
Federal Govt. SecuritiesMarket Treasury Bills 316 396 Pakistan Investment Bonds 30,382 32,140
Mutual Funds/Shares 3,604 - 34,302 32,536
29. OTHER INCOME
Gain on sale of operating fixed assets 3,312 1,743 Fee on fund managed by the Bank - EPF 1,134 1,152 Gain on termination of lease - 170 Others 125 222
4,571 3,287
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
156
2016 201530. ADMINISTRATIVE EXPENSES Note Rupees in '000
Salaries, allowances, etc. 483,030 416,146 Charge for defined benefit plans
- pension fund and gratuity 36.1.4 50,365 40,273 - unfunded gratuity scheme - the Bank 36.2.4 11,895 10,488 - unfunded gratuity scheme - SMEL 36.5.5 1,191 1,107 - unfunded compensated absences 36.3.4 6,879 10,254
Contribution to defined contribution plan - benevolent fund 36.4.3 - 1,913 Non-executive directors' fees, allowances and other expenses 1,761 1,906 Rent, taxes, insurance, electricity, etc. 86,663 79,069 Legal and professional charges 20,914 17,219 Communications 6,938 6,624 Repairs and maintenance 28,872 24,012 Finance charges on leased assets 119 266 Stationery and printing 5,374 4,781 Advertisement and publicity 1,163 1,170 Auditors' remuneration 30.1 1,367 1,640 Depreciation 13.3 32,157 29,687 Amortization 13.4 879 755 Donations - - Recruitment expenses 91 176 Travel and transport 6,857 5,160 Vehicle running and maintenance expenses 6,265 6,800 Entertainment 3,021 2,793 Training 305 555 Books, subscription and newspapers 2,872 2,629 Other expenses 30.2 18,875 17,398
777,853 682,821
30.1 Auditors' remunerationAudit fee 1,100 1,150
150 350 Out-of-pocket expenses 117 140
1,367 1,640
30.2
2016 201531. OTHER CHARGES Rupees in '000
Penalties imposed by the State Bank of Pakistan - 826
Special certifications, half yearly review and audit of consolidatedfinancial statements
This includes security charges of Rs. 15.53 million (2015: Rs. 13.08 million) and NIFT charges of Rs. 1.33 million(2015: Rs. 1.51 million).
2016 201532. TAXATION Note
Current 32.2 6,979 7,866 Prior years - (4,073) Deferred (264,230) -
(257,251) 3,793 Restated
2016 2015
32.1 Relationship between tax expense and accounting lossLoss before tax (528,155) (296,749)
Applicable tax rate 35% 35%Tax on loss (184,854) (103,862) Tax arising on Deferred tax asset recognised during the year (264,230) - Tax effect of income taxed at lower rate 332 339 Minimum tax 6,647 7,527 Tax credit for prior years - (4,073) Other permanent differences 184,854 103,862
(257,251) 3,793 32.2
Restated2016 2015
33. BASIC/DILUTED LOSS PER SHARENet loss after tax for the year (267,310) (295,604)
Weighted average number of ordinary shares 239,250,700 239,250,700
RestatedBasic/diluted loss per share (1.12) (1.24)
2016 201534. CASH AND CASH EQUIVALENTS
Cash and balances with treasury banks 560,882 390,101 Balances with other banks 26,665 3,315 Call money lendings - 400,000
587,547 793,416
2016 201535. STAFF STRENGTH
Permanent 180 183Temporary/on contractual basis 233 241Daily wagers 2 1Group's own staff strength at end of the year 415 425Outsourced 113 111Total staff strength at end of the year 528 536Average number of employees during the year 532 520
Provision for current year expenses is charged on minimum tax rate of 1% of the turnover due to taxlosses of the Group for the year ended December 31, 2016.
Rupees in '000
Number of persons
Rupees in '000
Rupees
Rupees in '000
Number of shares
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
157
2016 201532. TAXATION Note
Current 32.2 6,979 7,866 Prior years - (4,073) Deferred (264,230) -
(257,251) 3,793 Restated
2016 2015
32.1 Relationship between tax expense and accounting lossLoss before tax (528,155) (296,749)
Applicable tax rate 35% 35%Tax on loss (184,854) (103,862) Tax arising on Deferred tax asset recognised during the year (264,230) - Tax effect of income taxed at lower rate 332 339 Minimum tax 6,647 7,527 Tax credit for prior years - (4,073) Other permanent differences 184,854 103,862
(257,251) 3,793 32.2
Restated2016 2015
33. BASIC/DILUTED LOSS PER SHARENet loss after tax for the year (267,310) (295,604)
Weighted average number of ordinary shares 239,250,700 239,250,700
RestatedBasic/diluted loss per share (1.12) (1.24)
2016 201534. CASH AND CASH EQUIVALENTS
Cash and balances with treasury banks 560,882 390,101 Balances with other banks 26,665 3,315 Call money lendings - 400,000
587,547 793,416
2016 201535. STAFF STRENGTH
Permanent 180 183Temporary/on contractual basis 233 241Daily wagers 2 1Group's own staff strength at end of the year 415 425Outsourced 113 111Total staff strength at end of the year 528 536Average number of employees during the year 532 520
Provision for current year expenses is charged on minimum tax rate of 1% of the turnover due to taxlosses of the Group for the year ended December 31, 2016.
Rupees in '000
Number of persons
Rupees in '000
Rupees
Rupees in '000
Number of shares
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36. EMPLOYEE BENEFIT PLANS36.1 Defined benefit pension and gratuity36.1.1 General description
The scheme entitles the members to:-
-
36.1.2 The amounts recognised in the balance sheet for defined benefit pension and gratuity are as follows:2016 2015
Present value of defined benefit obligation 1,017,166 834,743 Fair value of plan assets (805,739) (719,350) Receivable from the fund - (3,010) Deficit 211,427 112,383
36.1.3 Movement in net liability recognised in the balance sheet
Opening balance 112,383 79,907 Expense for the year 50,365 40,273 Other comprehensive income 87,102 31,846 Contribution to the fund (41,433) (36,633) Adjusted/Receivable from the fund 3,010 (3,010) Closing balance 211,427 112,383
36.1.4 The amounts recognised in the profit and loss account are as follows:
Current service cost 41,844 33,344 Net interest 8,521 6,929 Expense for the year 50,365 40,273
The expense has been recognized in administrative expenses in profit and loss account.
36.1.5 Actual return on plan assets 55,977 65,570
2016 201536.1.6 Changes in present value of defined benefit obligation
Present value of obligation at the beginning of the year 834,743 721,255 Current service cost 41,844 33,344 Interest cost 74,631 79,780 Benefits paid (existing pensioners) (11,021) (24,201) Actuarial loss/(gain) 76,969 24,565 Present value of obligation at the end of the year 1,017,166 834,743
36.1.7 Changes in fair value of plan assets
Fair value of opening plan assets 719,350 641,348 Expected return on plan assets 66,110 72,851 Contributions 41,433 36,633 Benefits paid (11,021) (24,201) Actuarial (loss) (10,133) (7,281) Fair value of closing plan assets 805,739 719,350
The expected return on plan assets is based on the market expectations and depends upon the asset portfolio of the fund at the beginningof the period, for returns over the entire life of the related obligation.
Rupees in '000
The Bank operates an approved defined benefit pension and gratuity scheme for all its eligible employees. Contributions are made inaccordance with the actuarial recommendations.
Gratuity payable to members who have completed a minimum of 5 years of service and total service on retirement or cessation ofservice or death is less than 10 years.
Pension payable to members who have completed a minimum of 10 years of service with the Bank on retirement at age of sixty yearsor on completion of 25 years of service with the Bank or on permanent disability or on death during service.
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36.1.8 Break-up of category of assets% age % age
Pakistan Investment Bonds (PIBs) - 0% 184,130 26%Term Deposits Receipts (TDRs) 794,384 99% 535,194 74%Bank deposit accounts 11,355 1% 26 0%
805,739 100% 719,350 100%
36.1.9 Principal actuarial assumptions
2016 2015
Valuation discount rate - per annum 9.50% 9.00%Expected return on plan assets - per annum 9.50% 9.00%Salaries increase rate - per annum 7.50% 7.00%Pension indexation rate 5.50% 5.00%
Mortality rateSLIC
2001-2005SLIC
2001-2005
36.1.10 Disclosure for current and previous four annual years
2016 2015 2014 2013 2012
Present value of obligation 1,017,166 834,743 721,255 617,807 629,749 Fair value of plan assets (805,739) (719,350) (641,348) (539,194) (442,793) Deficit 211,427 115,393 79,907 78,613 186,956
Experience adjustmentson plan liabilities-(gain)/loss 76,969 24,565 (363) (119,517) 78,268
Experience adjustments on plan assets - loss (10,133) (7,281) (2,814) (8,331) (5,724)
36.1.11 Sensitivity analysis
Assumptions Change in assumption
Increase in assumption
Decrease in assumption
Discount rate 1% (125,286) 154,971 Salary rate 1% 77,901 (70,884) Withdrawal rate 10% 123 (127) Mortality age 1 year 1,125 (1,015)
36.1.12 Risks Associated with Defined Benefit Plans
Investment Risks:
Longevity Risks:
Salary Increase Risk:
Withdrawal Risk:
36.1.13 The expected pension expense for the next financial year works out to Rs. 67.704 million (2015: Rs. 41.374 million).
36.1.14 Maturity Profile 2016 2015
The weighted average duration of the obligation (in years) 13.07 13.1
Impact on Defined Benefit Obligation
Rupees in '000
The risk arises when the actual performance of the investments is lower than expectation and thus creating a shortfall in the fundingobjectives.
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entireretiree population.
The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actualincreases are higher than expectation and impacts the liability accordingly.
The risk of actual withdrawals varying with the actuarial assumptions
Rupees in '000 Rupees in '000
Actuarial valuation is carried out annually. Latest actuarial valuation was carried out as at December 31, 2016 using Projected Unit CreditMethod. Significant actuarial assumptions used are as follows:
2016
Rupees in '000
2015
Sensitivity analysis is performed by changing only one assumption at a time while keeping the other assumptions constant.Sensitivity analysis of discount rate and salary increase rate is presented in the below tables:
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
160
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36.2 Defined benefit- unfunded gratuity scheme
36.2.1 General description
2016 201536.2.2 The amounts recognised in the balance sheet are as follows:
Present value of defined benefit obligation net liability 67,626 53,821
36.2.3 Movement in net liability recognised in the balance sheetOpening balance of liability 53,821 44,711 Expense for the year 11,895 10,488 Other comprehensive income 10,317 9,533 Benefits paid during the year (8,407) (10,911)Closing balance of net liability 67,626 53,821
36.2.4 The amounts recognised in the profit and loss account are as follows:
Current service cost 6,809 6,072 Net interest 5,086 4,416
11,895 10,488
The expense has been recognized in administrative expenses in profit and loss account.
36.2.5 Movement in payable to defined benefit unfunded gratuity scheme
Present value of obligation at the beginning of the year 53,821 44,711 Current service cost 6,809 6,072 Interest cost 5,086 4,416 Benefits paid (8,407) (10,911)Actuarial loss/(gain) 10,317 9,533 Present value of obligation at the end of the year 67,626 53,821
36.2.6 Significant actuarial assumptions are as follows: 2016 2015
Discount factor - per annum 9.50% 10.25%Salary increase rate - per annum (short term - 1 year) 7.50% 5.50%Salary increase rate - per annum (long term) 7.50% 8.25%
Mortality rateSLIC
2001-2005SLIC
2001-2005
36.2.7 Disclosure for current and previous four annual periods
2016 2015 2014 2013 2012
Present value of obligation 67,626 53,821 44,711 46,906 41,654 Experience adjustments on plan liabilities gain/(loss) 10,317 9,533 (10,275) 2,497 1,511
36.2.8 Sensitivity analysis
Assumptions Change in assumption
Increase in assumption
Decrease in assumption
Discount rate 1% (6,776) 7,981 Salary rate 1% 8,373 (7,195) Withdrawal rate 10% 43 (44) Mortality age 1 Year (63) 61
The Bank operates a defined benefit unfunded gratuity scheme for all eligible employees.
Sensitivity analysis is performed by changing only one assumption at a time while keeping the other assumptions constant.Sensitivity analysis of discount rate and salary increase rate is presented in the below tables:
Impact on Defined Benefit Obligation
Rupees in '000
Rupees in '000
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36.2.9 Maturity ProfileParticulars
Year 1 7.861 Year 2 0.823 Year 3 0.958 Year 4 6.976 Year 5 0.961 Year 6 to Year 10 22.815 Year 11 and above 208.491
36.2.10 Risks Associated with Defined Benefit Plans
Longevity Risks:
Salary Increase Risk:
Withdrawal Risk:
36.2.11 The expected gratuity expense for the next financial year works out to Rs. 12.937 million (2015: Rs. 11.218 million).
36.2.12 Maturity Profile 2016 2015
The weighted average duration of the obligation (in years) 13.07 13.1
36.3 Unfunded compensated absences
36.3.1 General description
36.3.2 Principal actuarial assumptions
2016 2015
Discount factor - per annum 9.50% 9.00%Salaries increase rate - per annum 7.50% 7.00%
Mortality rateSLIC
2001-2005SLIC
2001-20052016 2015
36.3.3 The amounts recognised in the balance sheet are as follows:
Present value of defined benefit obligation 72,245 77,399
36.3.4 Movement in liability recognized in the balance sheet
Balance at beginning of the year 77,399 79,075 Expense for the year 6,879 10,254 Other comprehensive income (2,162) - Benefits paid during the year (9,871) (11,930) Closing net Liability 72,245 77,399
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entireretiree population;
The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actualincreases are higher than expectation and impacts the liability accordingly;
The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement of theliability can go either way
Rupees in millions
Rupees in '000
Actuarial valuation was carried out as at December 31, 2016 using Projected Unit Credit Method. Significant actuarial assumptions usedwere as follows:
Undiscounted Payments
The Bank provides compensated absences, an unfunded scheme, as per entitlement to all its permanent and contractual employees.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
162
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36.3.5 Sensitivity analysis
Assumptions Change in assumption
Increase in assumption
Decrease in assumption
Discount rate 1% (4,336) 4,807 Salary rate 1% 5,155 (4,711)
36.3.6 Risks Associated with Defined Benefit Plans
Longevity Risks:
Salary Increase Risk:
Withdrawal Risk:
36.3.7 The expected compensated absences expense for the next financial year works out to Rs. 7.230 million (2015: Rs. 7.323 million).
36.3.8 Maturity Profile 2016 2015
The weighted average duration of the obligation (in years) 13.07 13.1
36.4 Benevolent fund
36.4.1 General description
36.4.2 Actuarial liability for active employees 13,712 2,876 16,588 12,927 3,343 16,270 Actuarial liability for beneficiaries 22 60 82 38 74 112
Total actuarial liability 13,734 2,936 16,670 12,965 3,417 16,382
Fair value of plan assets (14,081) (4,247) (18,328) (12,736) (3,957) (16,693)
Funding surplus (347) (1,311) (1,658) 229 (540) (311) Receivable from fund - - - (10) - (10) Asset recognized in balance sheet (347) (1,311) (1,658) 219 (540) (321)
Current service cost 223 66 289 210 77 287 Net interest (31) (118) (149) (21) (49) (70)
192 (52) 140 189 28 217
36.4.3
(Expense)/income for the year (232) (688) (920) 1,313 600 1,913 Funding surplus - - - - - -
(232) (688) (920) 1,313 600 1,913
Officers Benevolent
Fund
Staff Benevolent
Fund
Impact on Defined Benefit Obligation
Sensitivity analysis is performed by changing only one assumption at a time while keeping the other assumptions constant. Sensitivity analysis of discount rate and salary increase rate is presented in the below tables:
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entireretiree population.
The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actualincreases are higher than expectation and impacts the liability accordingly.
Staff Benevolent
Fund Total
The amount recognized in the profitand loss account is as follows:
(Rupees '000) (Rupees '000)
Expected benevolent expense/ (income) for the next one year commencing 01 January, 2017
Total
The Bank also operates a contributory benevolent fund for all its eligible employees (defined benefit scheme). Contributions to this fundwere made equally by the Bank and employees till March 2002. Thereafter it is wholly contributed by the Bank at the rate of 2% of basicsalary with a ceiling of Rs. 200 per month per employee. Annual contribution towards the defined benefit scheme are made on the basis ofactuarial advice using the Projected Unit Credit Method.
2016 2015 Officers
Benevolent Fund
The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement of theliability can go either way.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
163
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36.4.4 Break-up of category of assets% age % age
Pakistan Investment Bonds (PIBs) - 0% 9,277 56%Term Deposits Receipts (TDRs) 18,164 99% 7,315 43%Bank deposit accounts 164 1% 101 1%
18,328 100% 16,693 100%
36.4.5 Maturity Profile 2016 2015The weighted average duration of the obligation (in years) 13.07 13.1
36.5 SMEL operates following staff retirement and other benefits schemes for its employees
36.5.1 Principal actuarial assumptions 2016 2015
Discount rate 9.50% 10.00%Expected long term rate of increase in salary level 9.50% 10.00%
2016 201536.5.2 Liability in balance sheet
Present value of defined benefit obligation 5,153 4,891
36.5.3 Movement in liability during the year Opening balance 4,891 4,307 Charged to profit and loss account 1,191 1,090 Remeasurements loss chargeable in other comprehensive income (68) 106 Benefits paid during the year (861) (612) Closing balance 5,153 4,891
36.5.4 Reconciliation of the present value of defined benefit obligations
Present value of obligations as at 1 January 4,891 4,606 Current service cost 745 640 Interest cost 446 467 Benefits paid during the year (861) (612) Remeasurements loss chargeable in other comprehensive income (68) (210) Present value of obligations as at 31 December 5,153 4,891
36.5.5 Charge for the yearCurrent services cost 745 640 Interest cost 446 467
1,191 1,107
36.5.6 Re-measurements recognised in other comprehensive income
(4) - Experience adjustment (64) (210) Total re-measurements recognised in other comprehensive income (68) (210)
36.5.7 Sensitivity analysis
Rupees in '000 Rupees in '0002016 2015
Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the impact on the present value of the defined benefit obligations under the employee benefit schemes. The increase / (decrease) in the present value of defined benefit obligations as a result of change in each assumption is summarized below:
SMEL operates an unapproved and unfunded gratuity scheme for all its permanent employees. Number of employees covered under thescheme are 28 (2015: 32). The latest actuarial valuation of the gratuity scheme was carried out as at December 31, 2016 using the ProjectedUnit Credit Method. The following significant assumptions were used for valuation of the scheme:
Rupees in '000
Actuarial losses / (gains) on obligation
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
164
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
36.5.8 Key Statistics 2016 2015
Average age 41.1 39.4 Average service 8.5 7.6 Average entry age 32.6 31.8 Retirement assumption age 60 years 60 yearsMortality rates SLIC SLIC
2001-2005 2001-2005Set back 1 Set back 1
year year
Discount rate effect (Rupees '000) Rate effect
Original liability 5,153 9.5%1% increase 4,652 10.5%1% decrease 5,738 8.5%
Salary increase rate effect
Original liability 5,153 9.5%1% increase 5,741 10.5%1% decrease 4,640 8.5%
36.5.9 Maturity profile 2016 2015
The weighted average duration of the obligation (in years) 11 11
36.5.10 Disclosure for current and previous four annual periods
2016 2015 2014 2013 2012
Present value of defined benefit obligation 5,153 4,891 4,606 3,674 3,365 Experience adjustmentson plan liabilities (loss)/gain (64) (210) 35 (513) (145)
The sensitivity analysis prepared presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Rupees in '000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
165
37. COMPENSATION OF DIRECTORS AND EXECUTIVES
President/CEO2016 2015 2016 2015 2016 2015
Fees - - 1,420 1,500 - - Managerial remuneration 7,682 6,983 - - 195,424 159,894 Charge for defined benefit plan 2,462 1,527 - - 38,830 37,191 Rent and house maintenance 4,225 3,841 - - 65,356 51,040 Utilities 768 698 - - 18,668 15,222 Medical 1,152 1,047 - - 24,681 19,410 Conveyance - 52 - - 7,678 8,407 Leave fare assistance 1,231 1,119 - - 13,115 6,951 Bonus/ex-gratia - - - - - - Others 6,469 3,026 341 406 47,737 35,740
23,989 18,293 1,761 1,906 411,489 333,855
Number of persons 1 1 10 10 219 196
Directors Executives
(Rupees in '000)
Executives mean employees, other than the chief executive and directors, whose basic salary exceeds five hundredthousand rupees in a financial year. The remuneration of the Directors has been fixed in accordance with the Articleof Association.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
166
0 NO
TE
S T
O T
HE
CO
NSO
LID
ATE
D F
INAN
CIAL
ST
ATE
ME
NT
SFO
R T
HE
YE
AR E
ND
ED
DE
CEM
BER
31,
2016
38FA
IR V
ALU
E O
F FI
NAN
CIAL
INST
RU
ME
NT
S
38.1
On
bala
nce
shee
t fin
anci
al in
stru
men
ts
Not
e
Avai
labl
e fo
r sa
leH
eld
to
mat
urity
Hel
d fo
r tra
ding
Loan
s and
re
ceiv
able
s
Oth
er
finan
cial
as
sets
othe
r fin
anci
al
liabi
litie
sT
otal
Leve
l 1Le
vel 2
Leve
l 3
Secu
ritie
s no
t at f
air
valu
eT
otal
Fina
ncial
ass
ets m
easu
red
at fa
ir va
lue
- Inv
estm
ents
Gov
ernm
ent S
ecur
ities
(T b
ills a
nd P
IBs)
4,65
8,64
6
-
-
-
-
-
4,
658,
646
-
4,67
4,28
9
-
-
4,
674,
289
Ord
inar
y sh
ares
of l
isted
com
pani
es58
2
-
-
-
-
-
582
5,
312
-
-
-
5,31
2
O
rdin
ary
shar
es o
f unl
isted
com
pani
es26
,440
-
-
-
-
-
26
,440
-
-
-
26
,440
26
,440
Fina
ncial
ass
ets n
ot m
easu
red
at fa
ir va
lue
- Ban
k ba
lance
s with
trea
sury
ban
ks38
.2-
-
-
-
48
8,83
2
-
488,
832
-
-
-
48
8,83
2
488,
832
- B
alanc
es w
ith o
ther
ban
ks38
.2-
-
-
-
26
,665
-
26
,665
-
-
-
26
,665
26
,665
- L
endi
ng to
fina
ncial
inst
itutio
ns38
.2-
-
-
44
5,00
0
-
-
445,
000
-
-
-
44
5,00
0
445,
000
- A
dvan
ces
38.2
-
-
-
3,13
2,36
0
-
-
3,
132,
360
-
-
-
3,13
2,36
0
3,
132,
360
- Oth
er a
sset
s38
.2-
-
-
-
15
1,257
-
15
1,257
-
-
-
15
1,257
15
1,257
-O
ther
Inve
stm
ent (
COI/
TDR)
38.2
-
35,0
00
-
-
-
-
35,0
00
-
-
-
35,0
00
35,0
00
Fina
ncial
liab
ilitie
s not
mea
sure
d at
fair
valu
e
- Bill
s Pay
able
-
-
-
-
-
95,4
43
95,4
43
-
-
-
95,4
43
95,4
43
- Bor
row
ings
-
-
-
-
-
3,46
0,69
9
3,
460,
699
-
-
-
3,46
0,69
9
3,
460,
699
- Dep
osits
-
-
-
-
-
5,22
6,97
5
5,
226,
975
-
-
-
5,22
6,97
5
5,
226,
975
- Oth
er L
iabili
ties
-
-
-
-
-
204,
755
20
4,75
5
-
-
-
204,
755
20
4,75
5
The
fair
valu
e of
quo
ted
secu
rities
oth
er th
an th
ose
class
ified
as h
eld to
mat
urity
, is b
ased
on
quot
ed m
arke
t pric
e. Q
uote
d se
curit
ies c
lassif
ied a
s held
to m
atur
ity a
s car
ried
at c
ost.
The
fair
valu
e of
unq
uote
d eq
uity
secu
rities
, oth
er th
an
inve
stm
ents
in a
ssoc
iates
and
subs
idiar
ies, i
s det
erm
ined
on
the
basis
of t
he b
reak
-up
valu
e of
thes
e in
vest
men
ts a
s per
their
late
st a
vaila
ble
audi
ted
finan
cial s
tate
men
ts.
The
fair
valu
e of
unq
uote
d de
bt se
curit
ies, f
ixed
term
loan
s, ot
her a
sset
s, ot
her l
iabili
ties,
fixed
term
dep
osits
and
bor
row
ings
can
not
be
calcu
lated
with
suffi
cient
relai
bilit
y du
e to
the
abse
nce
of c
urre
nt a
nd a
ctiv
e m
arke
t for
thes
e as
sets
an
d lia
bilit
ies a
nd re
liabl
e da
ta re
gard
ing
mar
ket r
ates
for s
imila
r ins
trum
ents
.
BOO
K VA
LUE
FAIR
VAL
UE
In th
e op
inio
n of
the
man
agem
ent,
the
fair
valu
e of
the
rem
ainin
g fin
ancia
l ass
ets a
nd li
abili
ties a
re n
ot si
gnifi
cant
ly di
ffere
nt fr
om th
eir c
arry
ing
valu
es. S
ince
thes
e ar
e eit
her s
hort
term
in n
atur
e or
, in
the
case
of d
epos
its, a
re fr
eque
ntly
pre-
price
d.
2016
2016
Rup
ees i
n '0
00R
upee
s in
'000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
167
0 NO
TE
S T
O T
HE
CO
NSO
LID
ATE
D F
INAN
CIAL
ST
ATE
ME
NT
SFO
R T
HE
YE
AR E
ND
ED
DE
CEM
BER
31,
2016
On
bala
nce
shee
t fin
anci
al in
stru
men
ts (c
ontin
ued)
Avai
labl
e fo
r sa
leH
eld
to
mat
urity
Hel
d fo
r tra
ding
Loan
s and
re
ceiv
able
s
Oth
er
finan
cial
as
sets
Oth
er
finan
cial
lia
bilit
ies
Tot
alLe
vel 1
Leve
l 2Le
vel 3
Se
curit
ies
not a
t fai
r va
lue
Tot
al
Fina
ncial
ass
ets m
easu
red
at fa
ir va
lue
- Inv
estm
ents
Gov
ernm
ent S
ecur
ities
(T b
ills a
nd P
IBs)
3,90
3,65
1
-
-
-
-
-
3,
903,
651
-
3,95
1,97
3
-
-
3,
951,
973
Ord
inar
y sh
ares
of l
isted
com
pani
es3,
188
-
-
-
-
-
3,18
8
11
,458
-
-
-
11,4
58
O
rdin
ary
shar
es o
f unl
isted
com
pani
es26
,440
-
-
-
-
-
26,4
40
-
-
-
26
,440
26,4
40
Fina
ncial
ass
ets n
ot m
easu
red
at fa
ir va
lue
- Ban
k ba
lance
s with
trea
sury
ban
ks-
-
-
-
31
3,44
1
-
313,
441
-
-
-
31
3,44
1
313,
441
- B
alanc
es w
ith o
ther
ban
ks-
-
-
-
3,
315
-
3,31
5
-
-
-
3,
315
3,31
5
- L
endi
ng to
fina
ncial
inst
itutio
ns-
-
-
88
5,00
0
-
-
885,
000
-
-
-
88
5,00
0
885,
000
- A
dvan
ces
-
-
-
3,16
6,83
3
-
-
3,
166,
833
-
-
-
3,16
6,83
3
3,
166,
833
- Oth
er a
sset
s-
-
-
-
14
7,76
0
-
14,7
60
-
-
-
14
7,76
0
147,
760
-O
ther
Inve
stm
ent (
COI/
TDR)
-
61,6
87
-
-
-
-
61
,687
-
-
-
61,6
87
61
,687
Fina
ncial
liab
ilitie
s not
mea
sure
d at
fair
valu
e
- Bill
s Pay
able
-
-
-
-
-
114,
107
11
4,10
7
-
-
-
114,
107
11
4,10
7
- Bor
row
ings
-
-
-
-
-
2,88
9,05
8
2,
889,
058
-
-
-
2,88
9,05
8
2,
889,
058
- Dep
osits
-
-
-
-
-
4,76
8,75
2
4,
768,
752
-
-
-
4,76
8,75
2
4,
768,
752
- Oth
er L
iabili
ties
-
-
-
-
-
225,
089
22
5,08
9
-
-
-
225,
089
22
5,08
9
On
Bala
nce
shee
t fin
anci
al in
stru
men
ts
The
bank
mea
sure
s fair
valu
es u
sing
the
follo
win
g fa
ir va
lues
heir
arch
y th
at re
flect
s the
sign
ifica
nce
of th
e in
puts
use
d in
mak
ing
the
mea
sure
men
ts.
Leve
l 1: F
air v
alue
mea
sure
men
t usin
g qu
oted
pric
es (u
nadj
uste
d) in
act
ive
mar
kets
for i
dent
ical a
sset
s and
liab
ilitie
s.Le
vel 2
: Fair
valu
e m
easu
rem
ents
usin
g in
puts
oth
er th
an q
uote
d pr
ices i
nclu
ded
with
in le
vel 1
that
are
obs
erva
ble
for a
sset
or l
iabili
ty, e
ither
dire
ctly
(i.e.
as p
rices
) or i
ndire
ctly
(i.e.
deriv
ed fr
om p
rices
). Le
vel 3
: Fair
valu
e m
easu
rem
ents
usin
g in
puts
for t
he a
sset
s and
liab
ilitie
s tha
t are
not
bas
ed o
n ob
serv
able
mar
ket d
ata
(i.e.
unob
serv
able
inpu
ts).
38.2
38.3
38.4
BOO
K VA
LUE
FAIR
VAL
UE
2015
2015
The
bank
has
not
disc
lose
d th
e fa
ir va
lue
for t
hese
fina
ncial
ass
ets a
nd li
abili
ties,
as th
ese
are
for s
hort
term
and
or r
e-pr
iced
over
shor
t ter
m. T
here
fore
their
car
ryin
g am
ount
s are
reas
onab
le ap
prox
imat
ion
of fa
ir va
lue.
The
bank
's po
licy
is to
reco
gnise
tran
sfer
into
and
out
of t
he d
iffer
ent f
air v
alue
heira
rchy
leve
ls at
the
date
, the
eve
nt o
r cha
nge
in c
ircum
stan
ces,
that
cau
sed
the
trans
fer o
ccur
red.
The
re w
ere
no tr
ansf
ers b
etw
een
level
1 an
d lev
el 2
durin
g th
e ye
ar.
Curr
ently
no
finan
cial i
nstru
men
ts a
re c
lassif
ied in
leve
l 3.
Rupe
es in
'000
Rupe
es in
'000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
168
39. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES
The segment analysis with respect to business activity is as follows:
Trading & Commercial Other Leasing TotalSales Banking Operations
Total income 357,951 291,367 37,415 686,733 Total expenses 325,054 852,383 37,451 1,214,888 Net income/(loss) before tax 32,897 (561,016) (36) (528,155) Segment Assets (gross) 5,939,592 8,607,198 682,976 15,229,766 Segment Non Performing Loans - 5,418,812 321,036 5,739,848 Segment Provision Required 50,265 5,377,820 159,209 5,587,294 Segment liabilities 3,721,130 5,652,997 219,237 9,593,364 Segment Return on net Assets (ROA) (%) 0.56% -17.37% -0.01%Segment cost of funds (%) 8.74% 15.08% 17.08%
Trading & Commercial Other Leasing TotalSales Banking Operations
Total income 347,906 388,103 27,890 763,899 Total expenses 303,364 724,407 32,877 1,060,648 Net income/(loss) before tax 44,542 (336,304) (4,987) (291,762) Segment assets (gross) 5,389,050 8,468,233 725,236 14,582,519 Segment non performing loans - 5,517,582 358,182 5,875,764 Segment provision required 62,204 5,379,069 159,443 5,600,716 Segment liabilities 3,044,025 5,212,475 265,829 8,522,329 Segment Return on net Assets (ROA) (%) 0.84% -10.89% -0.88%Segment cost of funds (%) 9.97% 13.90% 12.37%
Assumptions used:-
-
Rupees in '000
Unallocatable assets representing 2.53% (2015: 0.82%) of the total assets have been allocated to segments based ontheir respective incomes.
Rupees in '000
2015
2016
Unallocatable liabilities representing 7.84% (2015: 8.01%) of the total liabilities have been allocated to segments basedon their respective incomes.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
169
40.
RE
LAT
ED
PAR
TY
TR
ANSA
CTIO
NS
Det
ails o
f bala
nces
out
stan
ding
at p
erio
d en
d an
d tra
nsac
tions
with
relat
ed p
artie
s are
as f
ollo
ws:
Key
Oth
erE
quity
E
mpl
oyee
sE
mpl
oyee
sK
eyO
ther
Equ
ity
Em
ploy
ees
Em
ploy
ees
Man
agem
ent
Em
ploy
ees
Parti
cipa
tion
bene
fitPr
ovid
ent
Man
agem
ent
Em
ploy
ees
Parti
cipat
ion
bene
fitPr
ovid
ent
Pers
onne
lFu
ndpl
ans
Tru
stPe
rson
nel
Fund
plan
sTr
ust
Balan
ces o
utst
andi
ng a
s at
-A
dvan
ces
15,8
40
14
7,89
7
-
-
-
12
,718
13
6,14
9
-
-
-
-Re
ceiv
ables
/mar
kup
7,36
4
47,8
34
2,56
1
1,6
58
-
6,38
1
46
,330
1,35
4
32
1
-
-D
epos
its7,
048
63
,979
38
0,09
4
-
94
,959
13
,317
10
0,48
0
365,
757
-
84
,405
-Pa
yabl
es/m
arku
p36
356
1,2
11
351,2
98
596
30
63
6
1,39
8
24
3,60
3
633
Tran
sact
ions
dur
ing
the
year
end
ed
-N
et m
ark-
up/i
nter
est e
arne
d43
5
5,
267
-
-
-
377
4,
365
-
-
-
-N
et m
ark-
up/i
nter
est e
xpen
sed
623
4,36
2
14
,624
-
6,
795
264
4,
657
16,1
56
-
4,
356
-
Paym
ents
mad
e on
beh
alf o
f-
-
73
-
-
-
-
15
8
-
-
-Re
mun
erat
ion
and
allow
ance
s62
,987
398,
516
-
-
-
45,1
74
354,
043
-
-
-
-
Cont
ribut
ion
to e
mpl
oyee
s ben
efit
plan
s-
-
-
61
,126
-
-
-
-
60
,604
-
-
Char
ge fo
r the
yea
r rela
ting
to
em
ploy
ees b
enef
it pl
ans
-
-
-
69,4
10
-
-
-
-
64,0
35
-
-Fe
e an
d co
mm
issio
n in
com
e-
-
1,134
-
-
-
-
1,15
2
-
-
Re
mun
erat
ion
of C
hief
Exe
cutiv
e of
ficer
, Dire
ctor
s and
Exe
cutiv
es is
disc
lose
d in
not
e 37
to th
e co
nsol
idat
ed fi
nanc
ial st
atem
ents
.
2016
2015
Rupe
es in
'000
Rup
ees i
n '0
00
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
170
41. CAPITAL ADEQUACY
Restated2016 2015
Regulatory capital baseTier I capital Shareholders capital/assigned capital 2,392,507 2,392,507 Reserves 234,660 234,660 Non-controlling interest 48,067 52,477 Unappropriated/unremitted profits (net of losses) (2,638,446) (2,275,929)
36,788 403,715 Less: Adjustments
Goodwill/intangible Assets 1,264 1,298 Investment in equity of subsidiary - - Deficit on revaluation of available for sale investments - -
1,264 1,298 Total tier I capital 35,524 402,417 Tier II capital 12,391 8,174 Eligible tier III capital - - Total regulatory capital (a) 47,915 410,591
Risk-weighted exposures Book Value Risk Adjusted Book Value Risk Adjusted
Value ValueCredit riskBalance sheet items: Cash and other liquid assets 587,547 5,333 393,416 663 Investments/ lending to financial institutions 5,186,040 511,752 4,936,558 664,585 Loans and advances 3,132,360 1,840,841 3,166,833 1,831,867 Fixed assets 110,506 110,506 129,581 129,581
Deferred tax assets 256,177 256,177 - - Other assets 369,842 321,033 355,415 302,202
9,642,472 3,045,642 8,981,803 2,928,898 Off balance sheet itemsWeighted Non-funded exposures 132,538 66,269 167,605 83,803
Credit risk-weighted exposures (b) 9,775,010 3,111,911 9,149,408 3,012,701
Market risk 1,022,592 746,359 Market risk-weighted exposures - 1,022,592 - 746,359
Total risk-weighted exposures (c) 4,134,503 3,759,060 Capital adequacy ratio credit risk [ (a)/(b) x 100 ] 1.54% 13.63%Total Capital adequacy ratio [ (a)/(c) x 100 ] 1.16% 10.92%
The risk weighted assets to capital ratio, calculated in accordance with the State Bank's guidelines on capital adequacy is asfollows:
2016 2015
State Bank of Pakistan (SBP) has granted exemption to the Bank vide letter No. BSD/SU-21/220/1624/2007 dated June 08,2007 from computing capital adequacy ratio under BASEL II till restructuring/privatization and has granted exemption fromimplementation of Basel III Capital Instructions till restructuring/privatization vide SBP letter #BPRD/BA&CPD/646/000886/16 dated January 12, 2016. Accordingly, the Bank computes capital adequacy ratio underBASEL I and SBP has allowed exemption in meeting the minimum CAR requirements of 10% till June 30, 2017 or completionof restructuring/ privatization of the Bank, whichever is earlier vide SBP letter No. BPRD/BA&CPD/646/1066/2017 datedJanuary 13, 2017.
Rupees in '000
Rupees in '000
----------Restated----------
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
171
42. RISK MANAGEMENT42.1 Credit risk
42.1.1 Segment by class of business
Contingencies andCommitments
Rupees Percent Rupees Percent Rupees Percent in '000 in '000 in '000
Chemical and pharmaceuticals 253,369 3.0% 1,439 0.0% - - Agriculture, forestry, hunting and fishing 249,423 2.9% - - - - Mining & quarrying 9,053 0.1% - - - - Textile 491,800 5.8% 87,270 1.7% - - Cement 20,268 0.2% 100,000 1.9% - -
82,528 1.0% 787 0.0% - - - -
184,184 2.2% 567 0.0% - - Financial - 0.0% 728,356 13.9% 3,454,878 71.3%Insurance - 0.0% 2,983 0.1% - -
39,166 0.5% 1,145 0.0% - - 364,250 4.3% - - - -
131,686 1.5% 1,653 0.0% - - Wholesale and trade 1,991,265 23.3% - - - -
80,295 0.9% - - - - Individuals 1,655,802 19.4% 2,159,978 41.3% 277,385 5.7%Services 386,275 4.5% - - 12,300 0.3%Government - - - - 983,832 20.3%Others 2,607,493 30.5% 2,142,797 41.0% 120,711 2.5%
8,546,857 100% 5,226,975 100% 4,849,106 100%
42.1.2 Segment by sector
Public/ Government - - 2,417,416 46% 983,832 20%Private 8,546,857 100% 2,809,559 54% 3,865,274 80%
8,546,857 100% 5,226,975 100% 4,849,106 100%
Transport, storage, and communication
Construction
Footwear and leather
Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failedcompletely to perform as contracted. The Group is not exposed to major concentration of credit risk. Writtenprocedures for credit and risk management functions have been developed and implemented. Credit evaluationsystem comprise of well designed loan approval and review responsibilities and it is ensured that Bank's credit-granting activities conform to the established strategy, prudential regulations and SBP instructions are strictlyfollowed. To ensure that credit granting activities are adequately diversified, besides fixing limits on individualcredit, it is ascertained that there is no concentration in a particular industry or economic sector, geographicalregion and specific product. Special attention is placed on such non-performing loans and a Special AssetsManagement Division follows up and recovers all such loans. Recovery against certain specific non-performingloans has been outsourced to National Bank of Pakistan.
Automobile and transportation equipment
Electronics and electrical appliances
Power (electricity), gas, water and sanitary
2016
Deposits Advances (Gross)
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
172
Segment by class of business
Contingencies andCommitments
Rupees Percent Rupees Percent Rupees Percent in '000 in '000 in '000
Chemical and pharmaceuticals 204,995 2.4% 105 0.0% - - Agriculture, forestry, hunting and fishing 293,268 3.4% - - - - Mining & quarrying 9,053 0.1% - - - - Textile 488,035 5.7% 76,646 1.6% - - Cement 20,268 0.2% - - - -
99,073 1.2% 2,804 0.1% - -
219,073 2.6% 143 0.0% - - Financial - - 715,760 15.0% 2,871,813 65.3%Insurance - 19 0.0% - -
62,129 0.7% 1,003 0.0% - - 385,011 4.5% - - - -
107,462 1.3% 1,350 0.0% - - Wholesale and trade 1,992,323 23.2% - - - -
- - 80,717 0.9% - - - -
Individuals 1,644,950 19.2% 1,678,625 35.2% 391,523 8.9%Services 277,759 3.2% - - 15,000 0.3%Government - - - - 1,020,465 23.2%Others 2,701,257 31.5% 2,292,297 48.1% 96,196 2.2%
8,585,373 100% 4,768,752 100% 4,394,997 100%
Segment by sector
Public/ Government - - 2,471,992 52% 1,020,465 23%Private 8,585,373 100% 2,296,760 48% 3,374,532 77%
8,585,373 100% 4,768,752 100% 4,394,997 100%
Electronics and electrical appliancesConstructionPower (electricity), gas, water and sanitary
Transport, storage, and communication
2015
Advances (Gross) Deposits
Footwear and leather garmentsAutomobile and transportation equipment
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
173
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
42.1.3 Details of non-performing advances and specific provisions by class of business segment
Specific Specific Provisions Provisions
Held Held
Chemical and pharmaceuticals 121,744 105,524 114,544 107,204 Agriculture, forestry, hunting and fishing 204,768 204,593 230,025 214,975 Mining & quarrying 9,053 9,053 9,053 9,053 Textile 389,353 364,181 387,717 360,384 Cement 20,268 20,268 20,268 20,268 Sugar - - - - Footwear and leather garments 71,454 61,163 89,855 59,388 Automobile and transportation equipment 84,870 65,828 87,111 69,554 Electronics and electrical appliances 13,561 12,119 27,032 19,978 Construction 73,733 70,541 74,434 69,842 Power (electricity), gas, water and sanitary 47,809 10,731 43,236 10,900 Wholesale and trade 1,380,471 1,334,600 1,434,668 1,350,267 Transport, storage and communication 17,967 10,754 4,977 1,607 Individuals 1,522,309 1,522,309 1,522,679 1,522,679 Services 88,420 47,370 61,052 38,458 Others 1,694,068 1,563,072 1,769,113 1,555,809
5,739,848 5,402,106 5,875,764 5,410,366
42.1.4 Details of non-performing advances - - and specific provisions by sector
Public/Government - - - - Private 5,739,848 5,402,106 5,875,764 5,410,366
5,739,848 5,402,106 5,875,764 5,410,366
2016 2015
Rupees in '000
Classified Advances
Classified Advances
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
174
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
42.1.5 GEOGRAPHICAL SEGMENT ANALYSIS
Contingenciesand
commitments
Pakistan (528,155) 9,642,472 49,108 4,849,106 Asia Pacific (including South Asia) - - - - Europe - - - - United States of America and Canada - - - - Middle East - - - - Others - - - -
(528,155) 9,642,472 49,108 4,849,106
Contingenciesand
commitments
Pakistan - restated (296,749) 8,981,803 459,474 4,394,997 Asia Pacific (including South Asia) - - - - Europe - - - - United States of America and Canada - - - - Middle East - - - - Others - - - -
(296,749) 8,981,803 459,474 4,394,997
42.2 Market risk
2016
Rupees in '000
Market risk is the risk that the value of on and off-balance sheet positions of the Group will be adverselyaffected by movements in interest rates, foreign exchange rates and equity prices resulting in a loss to earningsand capital. The Group's interest rates exposure comprises those originating from investing and lendingactivities. The Asset and Liability Committee of the Bank monitors and manages the interest rate risk with theobjective of limiting the potential adverse effect on the profitability of the Bank.
Net assets employed
Total assets employed
Rupees in '000
Loss before taxation
Loss before taxation
(restated)
2015Net assets employed (restated)
Total assets employees (restated)
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
175
0NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
42.2.1 Foreign exchange risk
Presently the Bank does not deal in foreign exchange.
Net foreigncurrencyexposure
Rupees in '000
Pakistan rupee 9,642,472 9,593,364 4,849,106 - United States dollar - - - - Great Britain pound - - - - Deutsche mark - - - - Japanese yen - - - - Euro - - - - Other currencies - - - -
9,642,472 9,593,364 4,849,106 -
Net foreigncurrencyexposure
Rupees in '000
Pakistan rupee - restated 8,981,803 8,522,329 4,394,997 - United States dollar - - - - Great Britain pound - - - - Deutsche mark - - - - Japanese yen - - - - Euro - - - - Other currencies - - - -
8,981,803 8,522,329 4,394,997 -
42.2.2 Equity position risk
The Group's exposure in equity market is classified in available for sale category with the intent to earn profitbased on fundamentals.
Assets Off-balance sheet items
2016
2015
Assets (restated) Liabilities Off-balance
sheet items
Liabilities
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
176
0 NO
TE
S T
O T
HE
CO
NSO
LID
ATE
D F
INAN
CIAL
ST
ATE
ME
NT
SFO
R T
HE
YE
AR E
ND
ED
DE
CEM
BER
31,
2016
42.2
.3M
ism
atch
of i
nter
est r
ate
sens
itive
ass
ets a
nd li
abili
ties
Effe
ctiv
eN
on-in
tere
st
Yiel
d/be
arin
gIn
tere
stT
otal
finan
cial
rate
inst
rum
ents
On-
bala
nce
shee
t fin
anci
al in
stru
men
tsAs
sets
Cash
and
bala
nces
with
trea
sury
ban
ks56
0,88
2
-
-
-
-
-
-
-
-
-
56
0,88
2
Ba
lance
s with
oth
er b
anks
2.14
%26
,665
2,29
2
51
1
350
146
163
-
31
390
-
22
,782
Le
ndin
g to
fina
ncial
inst
itutio
ns6.
61%
445,
000
445,
000
-
-
-
-
-
-
-
-
-
Inve
stm
ents
7.14
%4,
741,0
40
49,0
97
44
2
2,29
3,16
5
-
26
9,46
3
3,
949
2,00
8,18
6
11
6,73
8
-
-
Adv
ance
s9.
37%
3,13
2,36
0
299,
121
53
9,08
2
596,
344
1,14
5,83
1
78,2
52
394,
504
56
,786
17,4
07
5,03
3
-
O
ther
ass
ets
151,2
57
-
-
-
-
-
-
-
-
-
15
1,25
7
9,
057,
204
79
5,51
0
540,
035
2,
889,
859
1,
145,
977
34
7,87
8
39
8,45
3
2,06
5,00
3
13
4,53
5
5,03
3
73
4,92
1
Li
abili
ties
Bills
pay
able
95,4
43
-
-
-
-
-
-
-
-
-
95
,443
Bo
rrow
ings
from
fina
ncial
inst
itutio
ns6.
07%
3,46
0,69
9
3,02
4,69
1
40
8,83
7
4,34
4
8,55
7
9,13
1
3,
939
1,20
0
-
-
-
D
epos
its a
nd o
ther
acc
ount
s5.
94%
5,22
6,97
5
1,
531,
842
711,
300
23
2,75
4
415,
971
11
,638
3,
765
-
1,68
9,03
2
-
63
0,67
3
Su
b-or
dina
ted
loan
s-
-
-
-
-
-
-
-
-
-
-
Loan
from
the
Stat
e Ba
nk o
f Pak
istan
-
-
-
-
-
-
-
-
-
-
-
Li
abili
ties a
gain
st a
sset
s sub
ject
to fi
nanc
e lea
se60
1
60
1
-
-
-
-
-
-
-
-
-
O
ther
liab
ilitie
s20
4,75
5
-
-
-
-
-
-
-
-
-
20
4,75
5
8,
988,
473
4,
557,
134
1,12
0,13
7
23
7,09
8
42
4,52
8
20
,769
7,
704
1,20
0
1,
689,
032
-
930,
871
On-
balan
ce sh
eet g
ap
68,7
31
(3
,761
,624
)
(580
,102
)
2,
652,
761
721,
449
32
7,10
9
39
0,74
9
2,06
3,80
3
(1
,554
,497
)
5,03
3
(195
,950
)
Off-
bala
nce
shee
t fin
anci
al in
stru
men
tsCo
mm
itmen
ts to
ext
end
cred
it14
7,07
5
14
7,07
5
-
-
-
-
-
-
-
-
-
Co
mm
itmen
ts a
gain
st re
po b
orro
win
g3,
454,
878
3,
044,
754
410,
124
-
-
-
-
-
-
-
-
O
ff-ba
lance
shee
t gap
3,60
1,953
3,19
1,82
9
41
0,12
4
-
-
-
-
-
-
-
-
Tota
l Yiel
d/ In
tere
st R
isk S
ensit
ivity
Gap
(6,9
53,4
53)
(990
,226
)
2,65
2,76
1
721,
449
327,
109
390,
749
2,
063,
803
(1,5
54,4
97)
5,
033
-
Cum
ulat
ive
Yiel
d/ In
tere
st R
isk S
ensit
ivity
Gap
(6,9
53,4
53)
(7
,943
,679
)
(5,2
90,9
18)
(4,5
69,4
69)
(4,2
42,3
60)
(3
,851
,611
)
(1,7
87,8
08)
(3
,342
,305
)
(3,3
37,2
72)
-
42.2
.3.1
Reco
ncili
atio
n of
ass
ets a
nd li
abili
ties e
xpos
ed to
yiel
d/ in
tere
st ra
te ri
sk w
ith to
tal a
sset
s and
liab
ilitie
sR
upee
s in
'000
Tota
l fin
ancia
l ass
ets a
s per
not
e 42
.2.3
9,05
7,20
4
Tota
l fin
ancia
l liab
ilitie
s as p
er n
ote
42.2
.3
8,98
8,47
3
A
dd n
on-fi
nanc
ial a
sset
s:A
dd n
on-fi
nanc
ial li
abili
ties:
O
pera
ting
fixed
ass
ets
110,
506
O
ther
liab
ilitie
s60
4,89
1
Def
erre
d ta
x as
sets
256,
177
O
ther
ass
ets
218,
585
Balan
ce a
s per
Bala
nce
Shee
t9,
642,
472
Balan
ce a
s per
Bala
nce
Shee
t9,
593,
364
42
.2.3
.2Y
ield
risk
is th
e ris
k of
dec
line
in e
arni
ngs d
ue to
adv
erse
mov
emen
t of t
he y
ield
curv
e.42
.2.3
.3In
tere
st ra
te ri
sk
2016
Exp
osed
to Y
ield
/Int
eres
t ris
k
Rup
ees i
n '0
00
Inte
rest
rate
risk
isth
eris
kth
atth
eva
lue
offin
ancia
lins
trum
entw
illflu
ctua
tedu
eto
chan
ges
inth
em
arke
tint
eres
trat
es.O
utof
tota
lfin
ancia
lass
ets
ofRs
.9,0
57.2
mill
ion
(201
5:Rs
.8,6
44.5
7m
illio
n),t
hefin
ancia
lass
etsw
hich
wer
esu
bjec
tto
inte
rest
rate
risk
amou
nted
toRs
.8,3
22.2
8m
illio
n(2
015:
Rs.8
,104
.93
mill
ion)
.Inv
estm
ents
and
othe
rass
ets
amou
ntin
gto
Rs.4
,723
.1m
illio
n(2
015:
Rs.3
,996
.41
mill
ion)
resp
ectiv
elyar
egu
aran
teed
byth
eG
over
nmen
tofP
akist
an.A
nA
sset
s Liab
ility
Com
mitt
ee o
f the
Ban
k m
eets
per
iodi
cally
and
ens
ures
that
the
inve
stm
ents
are
mad
e in
an
appr
opria
te m
anne
r to
miti
gate
any
inte
rest
rate
and
liqu
idity
risk
.
Ove
r 1 to
3
mon
ths
Ove
r 3 to
6
mon
ths
Ove
r 6
mon
ths t
o 1
year
Ove
r 1 to
2
year
sU
pto
1 m
onth
Ove
r 2 to
3
year
sO
ver 3
to 5
ye
ars
Ove
r 5 to
10
year
sAb
ove
10
year
s
Rup
ees i
n '0
00
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
177
Mis
mat
ch o
f int
eres
t rat
e se
nsiti
ve a
sset
s and
liab
ilitie
s
Effe
ctiv
eN
on-in
tere
st
Yiel
d/be
arin
gIn
tere
stTo
tal
finan
cial
rate
inst
rum
ents
On-
bala
nce
shee
t fin
anci
al in
stru
men
tsAs
sets
Cash
and
bala
nces
with
trea
sury
ban
ks39
0,10
1
-
-
-
-
-
-
-
-
-
39
0,10
1
Balan
ces w
ith o
ther
ban
ks4.
12%
3,31
5
883
21
0
14
4
60
67
-
12
16
1
-
1,77
8
Lend
ing
to fi
nanc
ial in
stitu
tions
7.58
%88
5,00
0
40
0,00
0
485,
000
-
-
-
-
-
-
-
-
Inve
stm
ents
9.23
%4,
051,
558
35
6,12
1
402,
122
29
7,88
5
1,
349,
181
37
5,75
4
27
5,51
1
418,
361
57
6,62
3
-
-
A
dvan
ces
11.5
8%3,
166,
833
25
4,35
0
653,
366
57
6,42
5
1,
020,
273
12
5,26
0
48
3,66
7
28,4
18
19
,310
5,
764
-
O
ther
ass
ets -
rest
ated
147,
760
-
-
-
-
-
-
-
-
-
147,
760
8,
644,
567
1,
011,
354
1,54
0,69
8
87
4,45
4
2,
369,
514
50
1,08
1
75
9,17
8
446,
791
59
6,09
4
5,76
4
53
9,63
9
Liab
ilitie
sBi
lls p
ayab
le11
4,10
7
-
-
-
-
-
-
-
-
-
11
4,10
7
Borr
owin
gs fr
om fi
nanc
ial in
stitu
tions
7.22
%2,
889,
058
2,
354,
626
489,
884
4,
344
8,
688
17
,246
9,
131
5,13
9
-
-
-
Dep
osits
and
oth
er a
ccou
nts
7.13
%4,
768,
752
1,
307,
911
818,
851
22
5,43
4
41
7,20
6
5,
425
-
-
1,49
3,07
5
-
50
0,85
0
Sub-
ordi
nate
d lo
ans
-
-
-
-
-
-
-
-
-
-
-
Loan
from
the
Stat
e Ba
nk o
f Pak
istan
-
-
-
-
-
-
-
-
-
-
-
Liab
ilitie
s aga
inst
ass
ets s
ubjec
t t
o fin
ance
leas
e1,
975
1,
975
-
-
-
-
-
-
-
-
-
Oth
er li
abili
ties
225,
089
-
-
-
-
-
-
-
-
-
225,
089
7,
998,
981
3,
664,
512
1,30
8,73
5
22
9,77
8
42
5,89
4
22
,671
9,
131
5,13
9
1,
493,
075
-
840,
046
O
n-ba
lance
shee
t gap
64
5,58
6
(2,6
53,1
58)
23
1,96
3
644,
676
1,
943,
620
47
8,41
0
75
0,04
7
441,
652
(8
96,9
81)
5,76
4
(300
,407
)
Off-
bala
nce
shee
t fin
anci
al in
stru
men
tsCo
mm
itmen
ts to
ext
end
cred
it29
2,73
0
29
2,73
0
-
-
-
-
-
-
-
-
-
Com
mitm
ents
aga
inst
repo
bor
row
ing
2,87
1,81
3
2,38
4,40
7
48
7,40
6
Off-
balan
ce sh
eet g
ap3,
164,
543
2,67
7,13
7
48
7,40
6
-
-
-
-
-
-
-
-
Tota
l Yiel
d/ In
tere
st R
isk S
ensit
ivity
Gap
(5,3
30,2
95)
(255
,443
)
644,
676
1,94
3,62
0
478,
410
750,
047
44
1,65
2
(896
,981
)
5,
764
-
-Cu
mul
ativ
e Y
ield/
Inte
rest
Risk
Sen
sitiv
ity G
ap(5
,330
,295
)
(5,5
85,7
38)
(4
,941
,062
)
(2
,997
,442
)
(2
,519
,032
)
(1
,768
,985
)
(1,3
27,3
33)
(2
,224
,314
)
(2,2
18,5
50)
Reco
ncili
atio
n of
ass
ets a
nd li
abili
ties e
xpos
ed to
yiel
d/ in
tere
st ra
te ri
sk w
ith to
tal a
sset
s and
liab
ilitie
s
Tota
l fin
ancia
l ass
ets
8,64
4,56
7
Tota
l fin
ancia
l liab
ilitie
s7,
998,
981
Add
non
-fina
ncial
ass
ets:
Add
non
-fina
ncial
liab
ilitie
s:
Ope
ratin
g fix
ed a
sset
s12
9,58
1
Oth
er li
abili
ties
523,
348
Oth
er a
sset
s - re
stat
ed20
7,65
5
Ba
lance
as p
er B
alanc
e Sh
eet -
rest
ated
8,98
1,80
3
Ba
lance
as p
er B
alanc
e Sh
eet
8,52
2,32
9
Y
ield
risk
is th
e ris
k of
dec
line
in e
arni
ngs d
ue to
adv
erse
mov
emen
t of t
he y
ield
curv
e.In
tere
st ra
te ri
sk
Rupe
es in
'000
Rupe
es in
'000
Inte
rest
rate
risk
isth
eris
kth
atth
eva
lue
offin
ancia
lins
trum
entw
illflu
ctua
tedu
eto
chan
gesi
nth
em
arke
tint
eres
trat
es.O
utof
tota
lfin
ancia
lass
etso
fRs.
8,64
4.57
mill
ion
(201
4:Rs
.5,5
17.1
9m
illio
n),t
hefin
ancia
lass
etsw
hich
wer
esu
bjec
tto
inte
rest
rate
risk
amou
nted
toRs
.8,1
04.9
3m
illio
n(2
014:
Rs.4
,999
.74
mill
ion)
.Inv
estm
ents
and
othe
rass
etsa
mou
ntin
gto
Rs.3
,996
.41
mill
ion
(201
4:Rs
.1,3
47.1
4m
illio
n)re
spec
tively
are
guar
ante
edby
the
Gov
ernm
ento
fPak
istan
.An
Ass
ets
Liab
ility
Com
mitt
ee o
f the
Ban
k m
eets
per
iodi
cally
and
ens
ures
that
the
inve
stm
ents
are
mad
e in
an
appr
opria
te m
anne
r to
miti
gate
any
inte
rest
rate
and
liqu
idity
risk
.
2015 E
xpos
ed to
Yiel
d/In
tere
st ri
s k
Upt
o 1
mon
thO
ver 1
to 3
m
onth
sO
ver 3
to 6
m
onth
sO
ver 6
mon
ths
to 1
yea
rO
ver 1
to 2
ye
ars
Ove
r 2 to
3
year
sO
ver 3
to 5
ye
ars
Ove
r 5 to
10
year
sA
bove
10
year
s
Rupe
es in
'000
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
178
42.3
Liqu
idity
Ris
k
42.3
.1M
atur
ities
of A
sset
s and
Lia
bilit
ies
Ove
r 1O
ver 3
Ove
r 6O
ver 1
Ove
r 2O
ver 3
Ove
r 5U
pto
1to
3to
6 m
onth
s to
to 2
to 3
to
5to
10Ab
ove
mon
thm
onth
sm
onth
s 1 y
ear
year
sye
ars
year
sye
ars
10 y
ears
Rup
ees i
n '0
00As
sets
Cas
h an
d ba
lance
s with
trea
sury
ban
ks56
0,88
2
48
7,68
2
15
,304
1,13
6
3,01
5
-
-
-
53
,745
-
B
alanc
es w
ith o
ther
ban
ks26
,665
25
,074
511
35
0
146
163
-
31
39
0
-
Len
ding
to fi
nanc
ial in
stitu
tions
445,
000
445,
000
-
-
-
-
-
-
-
-
I
nves
tmen
ts4,
741,0
40
49,0
97
44
2
2,29
3,16
5-
26
9,46
3
3,94
9
2,
008,
186
116,
738
-
A
dvan
ces
3,13
2,36
0
246,
817
465,
599
54
1,69
8
719,
478
385,
137
52
1,20
5
176,
786
70
,607
5,03
3
Ope
ratin
g fix
ed a
sset
s11
0,50
6
2,
754
7,
577
7,89
0
11,3
96
14,8
08
13
,406
17,3
58
3,
274
32
,043
Def
erre
d ta
x as
sets
256,
177
-
-
-
-
25
6,17
7
-
-
-
-
Oth
er a
sset
s36
9,84
2
10
9,95
6
5,
946
5,44
8
153,
592
104
627
68
7
93,4
82
-
9,64
2,47
2
1,36
6,38
0
495,
379
2,
849,
687
887,
627
925,
852
53
9,18
7
2,20
3,04
833
8,23
6
37
,076
Liab
ilitie
s B
ills p
ayab
le95
,443
82
,674
-
-
-
-
-
-
12
,769
-
B
orro
win
gs fr
om fi
nanc
ial in
stitu
tions
3,46
0,69
9
3,02
4,69
1
408,
837
4,
344
8,
557
9,
131
3,
939
1,20
0
-
-
D
epos
its a
nd o
ther
acc
ount
s5,
226,
975
1,
871,
964
71
3,59
0
236,
024
41
6,90
3
12
,938
3,76
5
-
1,
971,
791
-
Sub
-ord
inat
ed lo
ans
-
-
-
-
-
-
-
-
-
-
L
iabili
ties a
gain
st a
sset
s sub
ject t
o fin
ance
leas
e60
1
35
0
25
1
-
-
-
-
-
-
-
Def
erre
d ta
x lia
bilit
ies-
-
-
-
-
-
-
-
-
-
Oth
er li
abili
ties
809,
646
313,
295
60,0
91
8,
403
9,
046
11
,762
10,9
58
12
,009
384,
082
-
9,
593,
364
5,
292,
974
1,
182,
769
248,
771
43
4,50
6
33
,831
18,6
62
13
,209
2,36
8,64
2
-
N
et a
sset
s49
,108
(3
,926
,594
)
(687
,390
)
2,60
0,91
6
453,
121
892,
021
520,
525
2,18
9,83
9
(2,0
30,4
06)
37
,076
Sh
are
capi
tal
2,39
2,50
7
Rese
rves
234,
660
Una
ppro
priat
ed lo
ss(2
,638
,446
)
Non
-con
trolli
ng in
tere
st48
,067
Su
rplu
s on
reva
luat
ion
of a
sset
s12
,320
49,10
8
42.4
Ope
ratio
nal R
isk
Ope
ratio
nal r
isk is
the
risk
of lo
ss re
sulti
ng fr
om in
adeq
uate
or f
ailed
inte
rnal
proc
esse
s, pe
ople
and
syst
em o
r fro
m e
xter
nal e
vent
s.
Liqu
idity
risk
refle
cts
anen
terp
rise's
inab
ility
inra
ising
fund
sto
mee
tcom
mitm
ents
.In
orde
rto
avoi
dliq
uidi
tyris
k,th
eBa
nkha
sa
polic
yto
main
tain
suffi
cient
liqui
dity
.To
close
lyw
atch
liqu
idity
pos
ition
, the
Ass
ets L
iabili
ty C
omm
ittee
mee
ts p
erio
dica
lly to
ens
ure
that
ade
quat
e liq
uidi
ty is
main
tain
ed to
mee
t any
futu
re fi
nanc
ial o
blig
atio
n.
Ope
ratio
nal
risks
are
man
aged
thro
ugh
Bank
-wid
eor
line
ofbu
sines
ssp
ecifi
cpo
licies
and
proc
edur
es,
cont
rols
and
mon
itorin
gto
ols.
Exa
mpl
esof
thes
ein
clude
pers
onne
lm
anag
emen
t pra
ctice
s, da
ta re
conc
iliat
ion
proc
esse
s, fr
aud
man
agem
ent u
nits
, tra
nsac
tion
proc
essin
g m
onito
ring
and
analy
sis a
nd b
usin
ess c
ontin
uity
plan
ning
.
2016
Inco
mpl
iance
with
the
BSD
circu
larlet
ter
No.
03of
2011
date
dFe
brua
ry22
,201
1,all
asse
tsan
dlia
bilit
iesw
ithco
ntra
ctua
lmat
uriti
esha
vebe
enre
porte
das
per
their
rem
ainin
gm
atur
ities
,and
whe
reco
ntra
ctua
lmat
uriti
esar
eno
tava
ilabl
e,su
chas
sets
and
liabi
lities
have
been
repo
rted
aspe
rthe
irex
pect
edm
atur
ities
,det
erm
ined
onth
eba
sisof
beha
vior
stud
yof
pre
viou
s six
yea
rs' h
istor
ic da
ta u
nder
vol
atili
ty m
etho
dolo
gy. T
hese
bas
es h
ave
also
been
app
rove
d by
the
Ass
et a
nd L
iabili
ty C
omm
ittee
(ALC
O) o
f the
Ban
k.
Tot
al
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
179
Mat
uriti
es o
f Ass
ets a
nd L
iabi
litie
s
Ove
r 1O
ver 3
Ove
r 6O
ver 1
Ove
r 2O
ver 3
Ove
r 5U
pto
1to
3to
6m
onth
s to
to 2
to 3
to
5to
10
Abo
veTo
tal
mon
thm
onth
sm
onth
s 1
year
year
sye
ars
year
sye
ars
10 y
ears
Rupe
es in
'000
Asse
ts C
ash
and
balan
ces w
ith tr
easu
ry b
anks
390,
101
344,
221
9,33
1
54
0
1,43
5
-
-
-
34
,574
-
B
alanc
es w
ith o
ther
ban
ks3,
315
2,66
1
210
14
4
60
67
-
12
16
1
-
L
endi
ng to
fina
ncial
inst
itutio
ns88
5,00
0
40
0,00
0
48
5,00
0
-
-
-
-
-
-
-
I
nves
tmen
ts4,
051,
558
35
6,12
1
40
2,12
2
297,
885
1,
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181
37
5,75
4
275,
511
41
8,36
1
576,
623
A
dvan
ces
3,16
6,83
3
193,
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523,
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7,08
8
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66
2,87
5
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5,76
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7,30
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asse
ts-
-
-
-
-
-
-
-
-
-
Oth
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5,41
5
23
4,54
1
9,
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8,04
5
1,69
8
4,07
9
250
24
7
96,6
32
-
8,98
1,80
3
1,53
4,06
6
1,43
6,27
779
1,54
0
2,03
3,39
4
798,
846
95
0,79
3
595,
581
80
3,49
9
37,8
07
Li
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Bill
s pay
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114,
107
98,8
40
-
-
-
-
-
-
15
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-
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9,05
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17
,246
9,13
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-
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4,76
8,75
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1,57
9,81
9
821,
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22
6,36
2
422,
329
5,42
5
-
-
1,71
3,80
6-
Sub
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-
-
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L
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52
5
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liabi
lities
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-
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27
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2,04
3
280,
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-
8,52
2,32
9
4,30
8,71
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7,18
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with
the
BSD
circu
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ter
No.
03of
2011
date
dFe
brua
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,201
1,all
asse
tsan
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Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
180
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016
Un-audited Audited2016 2015
43 EMPLOYEES PROVIDENT FUND TRUST
Size of the Fund 216,957 196,597 Cost of investments made 160,508 146,089 Percentage of investments made 74% 74%Fair value of investments 160,508 146,089
Breakup of investments is as follows:Rupees % Rupees %
(000) (000)
Term Deposits Receipts (TDRs) 61,289 38% 12,663 9%Pakistan Investment Bonds (PIBs) - 0% 44,226 30%Mutual Funds 3,999 2% 3,641 2%
95,220 59% 85,559 59%
44 DATE OF AUTHORIZATION
These financial statements were authorized for issue by the Board of Directors of the Bank on March 03, 2017.
Rupees in '000
2016 2015
Bank deposit accounts
All investments out of provident fund trust have been made in accordance with Section 227 of the CompaniesOrdinance, 1984 and rules formulated for this purpose.
Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
Ihsan ul Haq KhanPresident/CEO
Muhammad Adnan JalilDirector
Zarar HaiderDirector
Badr-ul-ArifeenDirector
181
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Notes to the Consol idated Financial StatementsFor the year ended December 31 , 2016
This page is intentionally left blank
183
SME LEASING LIMITEDFINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
This page is intentionally left blank
185
Grant Thornton Anjum Rahman1st & 3rd Floor, Modern Motors HouseBeaumont Road, Karachi 75530
Chartered AccountantsMember of Grant Thornton International Ltd.
T +92 21 3567 2951-56F +92 21 3568 8834www.gtpak.com
REVIEW REPORT TO THE MEMBERS ON THE STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE AND PUBLIC SECTOR COMPANIES (CORPORATE GOVERNANCE) RULES, 2013
We have reviewed the enclosed Statement of Compliance with the best practices contained in the Public Sector Companies (Corporate Governance) Rules, 2013 (both herein referred to as Codes) prepared by the Board of Directors of SME Leasing Limited (the Company) for the year ended December 31, 2016 to comply with the requirements of Listing Regulations of Pakistan Stock Exchange where the Company is listed and the provisions of Public Sector Companies (Corporate Governance) Rules, 2013.
The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Codes and report if it does not and to highlight any non-compliance with the requirements of the Codes. A review is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to comply with the Codes.
As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks.
The Codes requires the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval its related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm’s length transactions and transactions which are not executed at arm’s length price and recording proper justification for using such alternate pricing mechanism. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm’s length price or not.
Moreover, the rules of Public Sector Companies (Corporate Governance) Rules 2013, requires the Board to ensure compliance with the law as well as the Company’s internal rules and procedures relating to procurement, tender verification, purchasing and technical standards when dealing with suppliers of goods and services in accordance with Public Procurement Regulatory Authority Rules. We hereby only performed our procedures to client’s compliance with above mentioned rules on a test basis as a part of our audit of the financial statements of the Company.
Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company’s compliance, in all material respects, with the best practices contained in the Codes as applicable to the Company for the year ended December 31, 2016 except for the noncompliance of clause 21 and 22 as explained in the enclosed statement of compliance.
Dated: February 27, 2017 Grant Thornton Anjum RahmanKarachi Chartered Accountants Muhammad Shaukat Naseeb Engagement Partner
186
Grant Thornton Anjum Rahman1st & 3rd Floor, Modern Motors HouseBeaumont Road, Karachi 75530
Chartered AccountantsMember of Grant Thornton International Ltd.
T +92 21 3567 2951-56F +92 21 3568 8834www.gtpak.com
Auditors ’ Repor t to The Members
We have audited the annexed balance sheet of SME Leasing Limited (the Company) as at December 31, 2016 and the related profit and loss account, statement of comprehensive income, statement of cash flows and statement of changes in equity together with the notes forming part thereof (here-in-after referred to as the ‘financial statements’), for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.
It is the responsibility of the Company’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:
(a) in our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984;
(b) in our opinion:
(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with the accounting policies consistently applied;
(ii) the expenditure incurred during the year was for the purpose of the Company’s business; and
(iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company;
(c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, statement of cash flows and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Company’s affairs as at December 31, 2016 and of the profit, total comprehensive income, its cash flows and changes in equity for the year then ended; and
(d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).
We draw attention to the following
187Chartered AccountantsMember of Grant Thornton International Ltd.
Auditors ’ Repor t to The Members
i) note 1.2 to the financial statement which indicates that the Company has incurred net loss Rs. 13.382 million (2015: Rs. 18.386 million) during the year ended December 31, 2016, and as of that date, its accumulated losses amounted to Rs. 211.510 million (2015: Rs. 198.196 million). These conditions, along with other matters as set forth in the above referred note; indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern.
Our opinion is not qualified in respect of above matters.
Other Matter
The financial statements of the Company for the year ended December 31, 2015 were audited by another firm of chartered accountants who in their audit report dated March 2, 2016, expressed an unqualified opinion.
Karachi Grant Thornton Anjum RahmanDate: February 27, 2017 Chartered Accountants Muhammad Shaukat Naseeb Engagement Partner
188
BALANCE SHEETSME LEASING LIMITED
AS AT DECEMBER 31, 2016Restated
2016 2015Note
ASSETS
5 2,519,445 3,115,209 6 2,668,119 2,484,094 7 1,543,998 556,552 3,752 13,843
Short term investments 8 - 4,283,091 9 - 3,979,986
10 407,979,966 432,784,153 Total current assets 414,715,280 447,216,928
11 7,252,950 17,380,776 12 71,986,638 91,803,251
Long-term deposits and prepayments 13 1,164,435 1,543,322 14 8,647,726 9,297,595
89,051,749 120,024,944 Total assets 503,767,029 567,241,872
15 4,166,310 6,066,743 16 959,922 1,171,429 17 104,838,931 129,066,524
Current maturity of non current liabilities 18 190,076,235 189,774,946 19 2,102,277 1,069,901
8,200,925 8,186,714 Total current liabilities 310,344,600 335,336,257
20 - 600,977 12 31,314,005 53,040,880 21 5,152,857 4,890,705
36,466,862 58,532,562 346,811,462 393,868,819 156,955,567 173,373,053
FINANCED BYAuthorized share capital100,000,000 (2015: 100,000,000) ordinary shares of Rs. 10 each 1,000,000,000 1,000,000,000
Issued, subscribed and paid-up share capital 22 320,000,000 320,000,000 Reserves 48,466,329 48,466,329 Accumulated loss (211,510,762) (198,196,367)
156,955,567 170,269,962 Unrealized gain on available for sale investments - 3,103,091 Total shareholders' equity 156,955,567 173,373,053
Contingencies and commitments 23
The annexed notes from 1 to 40 form an integral part of these financial statements.
Current maturity of non current assets
Cash and bank balances
Accrued interest on loan
AdvancesDeposits, prepayments and other receivables
Current assets
Asset held for sale
Taxation - net
Liabilities against assets subject to finance leaseLong-term depositsDefined benefit obligation
LIABILITIESCurrent liabilities
---------------Rupees---------------
Provision for compensated absences
Non-current liabilities
Total non-current liabilitiesTotal liabilitiesNET ASSETS
Accrued and other payablesMark-up accrued on borrowingsShort term borrowings
Non-current assets
Fixed assetsTotal non-current assets
Long term finances and loansNet investment in finance leases
Balance SheetAs at December 31 , 2016
Mir Javed HashmatChief Executive Officer
Bilal MustafaDirector
189
Restated
2016 2015Note
INCOME24 32,531,160 27,699,519
Profit on bank account/return on investment 25 1,790,051 18,881 Other income 26 3,093,906 170,720
4,883,957 189,601 37,415,117 27,889,120
27 38,111,121 38,378,774 28 13,224,768 17,665,337
51,335,889 56,044,111
(13,920,772) (28,154,991)
PROVISIONS12.4 (4,473,394) (6,361,725) 11.3 3,609,532 386,733
(863,862) (5,974,992)
(13,056,910) (22,179,999)
Current29 (325,312) (278,891)
-Prior - 4,073,209 (325,312) 3,794,318
(13,382,222) (18,385,681)
30 (0.42) (0.57)
Operating loss before provisions
The annexed notes from 1 to 40 form an integral part of these financial statements.
Provision for doubtful finances and loans- netReversal of provision for potential lease losses- net
Loss per share - basic and diluted
Total provisions
LOSS BEFORE TAXATION
Taxation
-For the year
LOSS FOR THE YEAR
---------------Rupees---------------
Total Income
Income from leasing operations
Income from other activities
EXPENSESAdministrative and generalFinance cost
Profi t and Loss AccountFor the year ended December 31 , 2016
Mir Javed HashmatChief Executive Officer
Bilal MustafaDirector
190
Restated2016 2015
Note
Loss after taxation (13,382,222) (18,385,681)
Other Comprehensive Income
Surplus on revaluation of available-for-sale investment - net - 1,073,968
Items not to be reclassified to profit or loss in subsequent periods
Remeasurement gain on defined benefit obligation 21.5 67,827 210,559
Total comprehensive income for the year (13,314,395) (17,101,154)
The annexed notes from 1 to 40 form an integral part of these financial statements.
Items to be reclassified to profit or loss in subsequent periods
---------------Rupees---------------
Statment of Comprehensive IncomeFor the year ended December 31 , 2016
Mir Javed HashmatChief Executive Officer
Bilal MustafaDirector
191
Restated2016 2015
Note CASH FLOW FROM OPERATING ACTIVITIES Loss before taxation (13,056,910) (22,179,999)
Adjustment for: Depreciation and amortization 27 1,928,441 1,699,173 Charge for defined benefit obligation - gratuity 21.2 1,190,713 1,106,797 Finance Cost 13,106,021 17,399,275 Profit on bank accounts/ return on investment (66,060) (53,868) Gain on disposal of available for sale investment 25 (1,569,478) - Dividend 25 (196,624) - Lease finance charges 28 118,747 266,062 Gain on disposal of property and equipment 26 (3,051,795) (135,733) Provision for other receivables 7.1 630,770 1,073,936 Provision for potential lease losses 12.4 (4,473,394) (6,361,725) Provision for doubtful loans and receivables 11.3 3,609,532 386,733
11,226,873 15,380,650 Operating loss before working capital changes (1,830,037) (6,799,349)
Movement in working capital(Increase) / decrease in operating assets
Accrued interest on loan 10,091 1,377,450 Net investment in lease 40,783,976 82,292,384 Decrease in finances and loans 14,828,512 10,792,708 Deposits, prepayments & other receivables (1,618,216) (648,092) Long-term deposits and prepayments 378,887 83,332 Advances (184,025) (354,839)
54,199,225 93,542,943 (Decrease) / increase in operating liabilities
Accrued and other payables (1,900,433) (9,587,382) Long term deposits received - (31,071,864) Provision for compensated absences 1,032,376 36,133
(868,057) (40,623,113) Cash generated from operations 51,501,131 46,120,481
Financial charges paid (13,317,528) (18,492,291) Interest income received 66,060 53,868 Gratuity paid (860,734) (612,000) Taxes paid (311,101) (534,554) Long term deposits paid (20,652,659) -
(35,075,962) (19,584,977) 16,425,169 26,535,504
CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure (1,280,792) (728,186) Proceeds from disposal of fixed assets 14.2 384,000 333,500 Proceeds from asset held for sale 6,650,000 - Proceeds from disposal of investment available for sale 2,749,479 - Dividend Income 196,624 -
8,699,311 (394,686) CASH FLOW FROM FINANCING ACTIVITIES
Increase/(decrease) in long-term finances-Net - (892,256) Lease rentals paid (1,492,651) (1,399,970)
Net cash from financing activities (1,492,651) (2,292,226) Net increase in cash and cash equivalents 23,631,829 23,848,592
Cash and cash equivalents at beginning of the year (125,951,315) (149,799,907) Cash and cash equivalents at end of the year 33 (102,319,486) (125,951,315)
The annexed notes from 1 to 40 form an integral part of these financial statements.
Net cash from operating activities
Net cash from / (used-in) investing activities
---------------Rupees---------------
Statement of Cash F lowFor the year ended December 31 , 2016
Mir Javed HashmatChief Executive Officer
Bilal MustafaDirector
192
Share premium
Statutory reserve
Reserve against
future losses
Accumulated loss
Surplus/ deficit on
revaluation of available for
sale investments
Balance as at January 01, 2015 320,000,000 10,000,000 28,019,277 10,447,052 (180,021,245) 2,029,123 190,474,207
Total Comprehensive income for the year ended 31 December 2015
Loss for the year - restated - - - - (18,385,681) - (18,385,681)
Other comprehensive incomeSurplus on revaluation of available-for -sale investments - net - - - - - 1,073,968 1,073,968
- - - - 210,559 - 210,559 - - - - - - -
Balance as at December 31, 2015 - restated 320,000,000 10,000,000 28,019,277 10,447,052 (198,196,367) 3,103,091 173,373,053
Balance as at January 01, 2016 - restated 320,000,000 10,000,000 28,019,277 10,447,052 (198,196,367) 3,103,091 173,373,053
Total Comprehensive income for the year ended 31, December 2016.
Loss for the year - - - - (13,382,222) - (13,382,222)
Other comprehensive incomeSurplus on revaluation of available-for -sale investments - net - - - - - (3,103,091) (3,103,091)
- - - - 67,827 - 67,827
Balance as at December 31, 2016 320,000,000 10,000,000 28,019,277 10,447,052 (211,510,762) - 156,955,567
Issued, subscribed and paid-up share capital
Capital reserves
The annexed notes from 1 to 40 form an integral part of these financial statements
-------------------------------------------- Rupees ----------------------------------------------------------------
Revenue reserves
Total shareholders'
equity
Remeasurement gain on defined benefitobligation
Remeasurement gain on defined benefitobligation
Statment of Changes in EquityFor the year ended December 31 , 2016
Mir Javed HashmatChief Executive Officer
Bilal MustafaDirector
193
1 LEGAL STATUS AND NATURE OF BUSINESS 1.1 SME Leasing Limited (the Company) was incorporated in Pakistan on July 12, 2002 as an
unlisted public company and acquired the status of a listed company on December 13, 2006. The Company is a subsidiary of SME Bank Limited (the Holding Company) , who holds 73.14% (December 31, 2015: 73.14%) of the Company’s shares. At the time of incorporation, the Company was a wholly owned subsidiary of the Holding Company, whereby under an arrangement the assets and liabilities of the leasing division of SME Bank Limited were transferred to the Company on January 28, 2003. The Company is listed on Pakistan Stock Exchange (formerly Lahore Stock Exchange) and its registered office is situated at 56-F, Nazim-ul-Din Road F-6/1, Blue Area, Islamabad. The core objective of the Company is to extend lease and working capital financing facilities to small and medium enterprises of the country.
1.2 The Company has been incurring losses since year ended December 31, 2009 which has resulted in erosion of equity. During the year ended December 31, 2016, the Company has incurred a loss of Rs. 13.382 million (2015: Rs. 18.386 million) and the accumulated losses to Rs. 211.510 million as at the year end (2015: Rs. 198.196 million). Further, the net assets of the Company amounting to Rs. 156.956 million (2015: Rs. 173.373 million) includes non-performing leases & loans and finances, net of provisions of Rs. 163.531 million (2015: Rs. 199.751 million).
Further the Company is dependent on the running finance facility granted by the holding company. The revised prudential regulation of State Bank of Pakistan (SBP) applicable from June 2015 has restricted the exposure by bank to a related party to the extent of 7.5% of its equity. However, the holding company has applied and obtained relaxation of the aforesaid requirement in respect of its financing to the Company by State Bank of Pakistan, which will expire on June 2017.
The above factors indicate the existence of a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern and the Company may not be able to realize its assets and discharge its liabilities in the normal course of business. However, these financial statements have been prepared on going concern basis considering the factors mentioned below:
- The holding company has granted a short term running finance facility to the Company amounting to Rs. 150 million (facility renewed on May17, 2016) out of which Rs. 104.838 million has been utilized as at December 31, 2016. The said facility can be extended to the extent of Rs. 300 million as per the stand-by agreement for finance facility. Holding company has applied for relaxation to the State Bank of Pakistan from the requirements of related party exposure limits in order to continue its support towards the Company. Further, holding company has been in the list of privatization by Government of Pakistan;
- The management of the Company has prepared cash flow projections which reflect that based on financial support by the holding company the Company will be able to continue its business on going concern basis in the foreseeable future;
- Concerted efforts are being made for the recovery of non-performing leases and loans and finances and in this respect during the year Rs. 54.104 million has been recovered. Further,
Notes to the Financial StatementsFor the year ended December 31 , 2016
194
subsequent to the year ended December 31, 2016, Rs. 0.688 million has been recovered in respect of the non-performing loans till the end of January 31, 2017.
- Efforts are also being made by the management to reduce the overall cost of the Company.
Based on the above mentioned financial measures and the concerted operational measures being taken by the Company, the management is confident of the profitable operations in the foreseeable future and therefore, has prepared the financial statements on going concern basis.
2 BASIS OF PREPARATION 2.1 Statement of compliance These financial statements have been prepared in accordance with approved accounting
standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, the directives issued by the Securities Exchange Commission of Pakistan (SECP), requirements under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules), and the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (the NBFC Regulations). Wherever the requirement of Ordinance, the NBFC Rules, the NBFC Regulations, or the directives issued by the SECP differ with the requirements of IFRS, the requirements of the Ordinance, the NBFC Rules, the NBFC Regulations and the directives issued by the SECP prevail.
2.2 Basis of measurement These financial statements have been prepared under the historical cost convention, except
that investment classified as ‘available-for-sale’ are marked to market and carried at fair value and defined benefit obligation are measured at present value or stated specifically in relevant notes.
2.3 Functional and presentation currency These financial statements are presented in Pakistan Rupees, which is the Company’s functional
currency. All financial information presented in Pakistan Rupees has been rounded to the nearest rupee.
2.4 Significant accounting estimates and judgments The preparation of financial statements in conformity with approved accounting standards
as applicable in Pakistan requires management to make judgments, estimates and associated assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experiences, various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future period if the
Notes to the Financial StatementsFor the year ended December 31 , 2016
195
revision affects both current and future periods.
Judgments made by the management in the application of approved accounting standards, as applicable in Pakistan, that has significant effect on the financial statements and estimates with a significant risk of material adjustment in the subsequent years are as follows:
- Provision for current and deferred taxation and recognition and measurement of deferred tax assets and liabilities (notes 4.14 and 29).
- Classification and provision of net investment in finance lease and loans and finances (notes 4.7, 11 and 12).
- Determination and measurement of useful life and residual value of operating fixed assets (note 4.2 and 14).
- Staff retirement benefits (4.5 and 21).- Classification and valuation of investments (notes 4.9 and 8).
3 Standards, Amendments and Interpretations to Approved Accounting Standards 3.1 Standards, amendments and interpretations to the published standards that are
relevant to the company and adopted in the current year The Company has adopted the following new standards, amendments to published standards
and interpretations of IFRSs which became effective during the current year.
Standard or Interpretation Effective DateIAS 1 - Disclosure Initiative (Amendments to IAS 1 Presentation of Financial Statements) January 1, 2016Annual Improvements to IFRSs 2012 - 2014 Cycle January 1, 2016IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16 and IAS 38) January 1, 2016
Adoption of the above revisions, amendments and interpretations of the standards have no significant effect on the amounts for the year ended December 31, 2015 and 2016.
Standards, amendments to published standards and interpretations that are effective but not relevant to the Company
The other new standards, amendments to published standards and interpretations that are mandatory for the financial year beginning on January 01, 2016 are considered not to be relevant or to have any significant effect on the Company’s financial reporting and operations and are therefore not presented here.
Standards, amendments and interpretations to the published standards that are relevant but not yet effective and not early adopted by the Company
The following new standards, amendments to published standards and interpretations would be effective from the dates mentioned below against the respective standard or interpretation.
Notes to the Financial StatementsFor the year ended December 31 , 2016
196
Standard or Interpretation Effective DateIAS 7 - Disclosure Initiative (Amendments to IAS 7) January 1, 2017IAS 12 - Recognition of Deferred Tax Assets for Unrealized Losses January 1, 2017IFRS 9 - Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’ (Amendments to IFRS 4) January 1, 2018IFRS 15 - Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’ January 1, 2018
Standards, amendments and interpretations to the published standards that are not yet notified by the Securities and Exchange Commission of Pakistan (SECP)
Following new standards have been issued by the International Accounting Standards Board (IASB) which are yet to be notified by the SECP for the purpose of applicability in Pakistan.
Standard or Interpretation IASB effective date (Annual periods beginning on or after)
IFRS 14 - Regulatory Deferral Accounts January 1, 2016IFRS 15 - Revenue from Contracts with Customers January 1, 2018IFRS 9 - Financial Instruments (2014) January 1, 2018IFRS 16 - Leases January 1, 2019
4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These significant accounting policies applied in the preparation of these financial statements
are set forth below:
4.1 Cash and cash equivalents Cash and cash equivalents comprise of cash balances and balances in current and savings
bank accounts. Short term running finance that are repayable on demand and form an integral part of the Company’s cash management, are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
4.2 Fixed assets
4.2.1 Property and equipment These are stated at cost less accumulated depreciation and impairment losses, if any.
Depreciation is charged to profit and loss accounts by using the straight line method at the rates specified in note 14.1 after taking into account residual value, if any. Depreciation on additions is charged from the month the assets are put to use while no depreciation is charged in the month in which the assets are disposed off. The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at each balance sheet date.
Subsequent costs are included in the assets’ carrying amounts or recognized as a separate asset, as appropriate, only when it is probable that future benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other subsequent costs including repairs and maintenance are charged to the profit and loss account as and when incurred.
Notes to the Financial StatementsFor the year ended December 31 , 2016
197
Gains or losses on sale of assets are charged to the profit and loss account in the period in which they arise.
4.2.2 Intangible These are stated at cost less accumulated amortization and impairment losses, if any.
Amortization is charged using the straight line method over its estimated useful life at the rate specified in note after taking into account residual value, if any. The residual values, useful lives and amortization methods are reviewed and adjusted, if appropriate at each balance sheet date.
Amortization on additions is charged from the month the assets are put to use while no amortization is charged in the month in which the assets are disposed off.
Gain and losses on disposal of such assets, if any, are included in the profit and loss account.
4.3 Assets held under finance lease The Company accounts for assets acquired under finance lease by recording the asset and
related liability. The amounts are determined on the basis of lower of their fair value of assets and present value of minimum lease payments at the inception of lease. Financial charges are allocated to accounting periods in a manner so as to provide a constant periodic rate of charge on the outstanding liability. Leased assets are depreciated on a basis similar to owned assets.
4.4 Assets held for sale Non current assets, or disposal groups comprising assets and liabilities, are classified as held-
for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held-for-sale and subsequent gains and losses on remeasurement are recognized in profit or loss.
4.5 Defined benefit obligation
Defined contribution plan The Company operates an approved defined contributory provident fund for all its permanent
employees. Monthly contributions are made to the fund equally by the Company and the employees at the rate of 8 percent of basic salary. The contributions are recognized as employee benefit expense when they become due.
Staff retirement benefits are payable to employees on completion of the prescribed qualifying period of service under the scheme.
Employees’ compensated absences The Company accounts for its liability towards accumulating compensated absences on the
basis of actuarial advice under project unit credit method, when the employees render service that increase their entitlement to future compensated absences. Remeasurement gain and losses including experience adjustment pertaining to long term compensated absences are recognized in profit and loss.
Notes to the Financial StatementsFor the year ended December 31 , 2016
198
Defined benefit plan The Company operates an unapproved and unfunded gratuity scheme covering all of its
permanent employees who have completed the qualifying period under the scheme. The scheme is administered by the trustees and contributions therein are made in accordance with the actuarial recommendations.
The valuation in this regard is carried out at each year end, using the Projected Unit Credit Method for the valuation of the scheme. Remeasurement of the defined benefit liability, which comprises of actuarial gains and losses are recognized immediately in other comprehensive income based on actuarial gains and losses.
The company determines the net interest expense (income) on the net defined benefit liability (asset) for the year by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual year to the net defined benefit liability (asset), taking into account and change in the net defined benefit liability (asset) during the year as a result of contribution and benefit payments. Net interest expense and other expense related to defined benefit plans are recognized in profit and loss account.
4.6 Net investment in lease finance Leases where the Company transfers substantially all the risks and rewards incidental to
ownership of the leased assets to the lessees, are classified as finance leases.
The leased asset is derecognized and the present value of the lease receivable is recognized on the balance sheet. The difference between the gross lease receivables and the present value of the lease receivables is recognized as unearned finance income. A receivable is recognized at an amount equal to the present value of the minimum lease payments under the lease agreements, including guaranteed residual value, if any.
Each lease payment received is applied against the gross investment in the finance lease receivable to reduce both the principal and the unearned finance income. the finance income is recognized in the profit and loss account on a basis that reflects a constant periodic rate of return on the net investment in the finance lease
Initial direct costs incurred by the Company in negotiating and arranging finance leases are added to finance lease receivables and are recognized as an expense in the profit and loss account over the lease term on the same basis as the finance lease income.
4.7 Provision for potential lease losses and doubtful loans and receivables Specific provision for potential lease losses and doubtful loans and receivables are made
based in the appraisal of each lease or loan on the basis of the requirements of the NBFC Regulations.
4.8 Financial assets and liabilities All the financial assets and financial liabilities are recognized at the time when the Company
becomes a party to the contractual provisions of the instrument and derecognized when the Company losses control of contractual rights that comprises the financial assets and in the case of financial liabilities when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on derecognition of financial assets and financial liabilities is taken to profit and loss account directly.
Notes to the Financial StatementsFor the year ended December 31 , 2016
199
Financial assets carried at balance sheet date includes cash and bank balances, accrued interest on loan, advances, investments, long term finances and loans, net investment in finance leases, deposits and other receivables.
Financial liabilities carried at balance sheet date includes short term borrowing, long term finances, liabilities against assets subject to finance lease, accrued and other payables.
4.9 Investments “The management determines the appropriate classification of its investments in accordance
with the requirements of International Accounting Standard 39; Financial instruments: Recognition and Measurement (IAS 39) at the time of initial recognition.”
All purchase and sale of investments that require delivery within the time frame established by regulation or market convention are recognized at the trade date, which is the date the Company commits to purchase or sell the investment.
Investment at fair value through profit or loss (held for trading) At the time of acquisition, quoted investments which are acquired principally for the purpose
of generating profit from short term fluctuations in price or are part of portfolio for which there is a recent actual pattern of short term profit taking are classified as held for trading.
Subsequent to initial recognition these are premeasured at fair value by reference to quoted market prices with the resulting gain or loss being included in net profit or loss for the period in which it arises.
Available-for-sale These are stated at fair value, with any resultant gain or loss being recognized directly in equity.
Gains or losses on revaluation of available-for-sale investments are recognized directly in equity until the investments are sold or other wise disposed off, or until the investments are determined to be impaired, at which time cumulative gain or loss previously reported in the equity is included in current year’s profit and loss.
All investments classified as available-for-sale are initially recognized at cost inclusive of transaction costs and subsequently quoted investments are marked to market using the last quoted rate at the close of the financial year.
Held to maturity At the time of acquisition, investments with fixed maturity, where management has both the
intent and the ability to hold to maturity, are classified as held to maturity.
Subsequently, these are measured at amortized cost less provision for impairment in value, if any mortised cost is calculated by taking into account any discount or premium on acquisition by using the effective yield method.
The difference between the redemption value and the purchase price of the held to maturity investments is amortized and taken to the profit and loss account over the term of the investment.
These are reviewed for impairment at year end and any losses arising from impairment in values are charged to the profit and loss account.
Notes to the Financial StatementsFor the year ended December 31 , 2016
200
4.10 Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market.
These are initially recognized at fair value plus any related transaction costs directly attributable to the acquisition. Subsequent to initial recognition, they are carried at amortized cost.
4.11 Impairment The carrying value of the Company’s assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If such an indication exists, the recoverable amount of such asset is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the profit and loss account.
4.12 Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which
the derivative contract is entered into and are subsequently premeasured at fair value. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value is recognized in the profit and loss account.
4.13 Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are only offset and the net amount reported in the
balance sheet when there is a legally enforceable right to set off the recognized amount and the Company intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.
4.14 Taxation Taxation charge in the profit and loss account comprises of current and deferred tax.
Current Provisions for current taxation is based on taxability of certain income streams of the
Company under presumptive / final tax regime and minimum tax under section 113 of the Income Tax Ordinance, 2001, wherever applicable, at the applicable tax rates and remaining income streams chargeable at current rate of taxation under the normal tax regime after taking into account tax credits and tax rebates available, if any.
Deferred Deferred tax is provided using the balance sheet liability method, providing for temporary
differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
Deferred tax is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Notes to the Financial StatementsFor the year ended December 31 , 2016
201
4.15 Provisions A provision is recognized in the balance sheet when the Company has legal or constructive
obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provision are reviewed at each balance sheet date and are adjusted to reflect the current best estimate.
4.16 Long term finances Long term finances are initially recognized at cost being the fair value of the consideration
received together with the associated transaction cost.
Subsequently, these are carried at amortized cost using effective interest method. Transaction cost relating to the long term finance is being amortized over the period of agreement using the effective interest method.
4.17 Revenue recognition- The Company follows the finance lease method in accounting for the recognition
of lease income. Under this method, the unearned lease income i.e. the excess of gross lease rentals and the estimated residual value over the cost of the leased assets is deferred and taken to income over the term of the lease contract, so as to produce a systematic return on the net investment in finance lease. Unrealized lease income is held in suspense account, where necessary, in accordance with the requirements of the NBFC Regulations.
- Front-end fees and documentation charges are taken to income when realized. - Income on investments is accounted for on accrual basis. - Dividend income is recognized when the right to receive the dividend is established. - Income on loans and finances is accounted for on accrual basis using effective interest
method.- Unrealized lease income and unrealized income on loans and finances is held in
suspense account, where necessary, in accordance with requirements of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (NBFC Regulations).
- Profit on bank deposit and short term placements is accrued on a time proportion basis.
- Gain or loss arising on sale of investments are taken to income in the period in which they arise.
4.18 Earnings / (loss) per share The Company presents basic and diluted earnings / (loss) per share (EPS) for its shareholders.
Basic EPS is calculated by dividing the profit or loss attributable to ordinary share holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effect of all dilutive potential ordinary shares, if any.
4.19 Dividend distribution and transfer between reserves Dividend distribution (including stock dividend) to the Company’s shareholders and transfer
between reserves, except appropriations which are required under law, are recognized in the financial statements in the period in which such dividends are declared or such transfers
Notes to the Financial StatementsFor the year ended December 31 , 2016
202
between reserves are made.
4.20 Capital and Revenue reserves
Share premium The share premium was recorded in the year 2006 on issue of shares in accordance with
requirements of the Companies Ordinance, 1984. This premium is available for restrictive use as per section 83 of the Companies Ordinance 1984.
Statutory reserves In accordance with the requirements of the NBFC Regulations, an amount of not less than
20 percent of after tax profits shall be transferred to statutory reserve till such time when the reserve equals the amount of paid-up capital, and thereafter a sum of not less than 5 percent shall be transferred. Consequently, during the current year the Company has transferred an amount of Rs. Nil (2015: Rs. Nil) to its statutory reserve.
Reserve against future losses This reserve represents amounts set aside in view of the risks associated with the economic
cyclical nature of the business and is recognized as an appropriation of retained earnings. Any credits resulting from reduction of such amounts result in an increase in unappropriated profit and are not included in the determination of profit and loss for the period. The amount to be set aside against future losses is determined at the rate of 0.5 percent of the outstanding balance of the regular portfolio of leases and loans and receivables as at each year end. No such reserve has been created by the Company for the year ended December 31, 2016.
Notes to the Financial StatementsFor the year ended December 31 , 2016
203
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
2016 2015Note
5 CASH AND BANK BALANCES
Cash in hand 56,412 66,412
Balances with State Bank of Pakistan in current account 23,431 23,431 Balances with banks in:
- current accounts 5.1 2,300,218 2,729,541 - saving accounts 5.2 139,384 295,825
2,519,445 3,115,209
5.1 These include balance with related party amounting to Rs. 0.210 million (2015: Rs. 1.451 million).
5.2 These carry profit rate of 4% per annum (2015: 4.5% to 6% per annum).
2016 2015Note
6 ADVANCES - considered good
Advances to:- employees 6.1 719,487 425,819 - others 1,948,632 2,058,275
2,668,119 2,484,094
6.1
Restated2016 2015
Note7
428,600 - Prepayments 1,070,812 556,552 Other receivable 1,749,292 1,073,936
3,248,704 1,630,488 Less: Provision for other receivables 7.1 (1,704,706) (1,073,936
1,543,998 556,552
7.1 Provision for other receivables
Balance at beginning of the year 1,073,936 - Provision for the year 630,770 1,073,936 Balance at end of the year 1,704,706 1,073,936
Security deposits against assets acquired under lease arrangements
These represents interest free advances given to employees against salaries. These are recovered throughmonthly deductions from salaries over a period of one year from the date of disbursement.
---------------Rupees---------------
---------------Rupees---------------
---------------Rupees--------------- DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES
Notes to the Financial StatementsFor the year ended December 31 , 2016
204
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
8 SHORT TERM INVESTMENTS
9 ASSETS HELD FOR SALE
10 2016 2015Note
Current portion of : - Long term finances and loans 11 73,034,569 81,344,787 - Net investment in finance leases 12 334,945,397 351,439,366
407,979,966 432,784,153
11 LONG TERM FINANCES AND LOANS - Secured
Related parties - considered good-Employees 11.1 1,361,073 613,458
Other - Customers-considered good 11.2 17,873,824 20,795,532 -considered doubtful 70,101,955 82,756,374
87,975,779 103,551,906 Less: Provision for doubtful finances and loans - net 11.3 (9,049,333) (5,439,801)
78,926,446 98,112,105
80,287,519 98,725,563 Less: Current maturityRelated parties - Employees (250,000) (70,907) Other - Customers (72,784,569) (81,273,880)
(73,034,569) (81,344,787)
7,252,950 17,380,776
11.1
This represents investment in nil certificates (2015: 327,709 certificates) of Namco Balance Fund, w hichhas been disposed of during the year at Rs. 2,749,478. The Company earned realized gain ofRs.1,569,478 (2015 Rs. nil).
This represents property located at F.B area classified as assets held for sale in accordance w ith therequirements of IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations. The Company sold asset to an individual person at Rs. 6,650,000, realizing gain of Rs. 2,670,014.
These represent housing and vehicle loans given to employees. These loans are recovered throughdeduction from salaries over varying periods up to a maximum period of 20 years. These loans aregranted to the employees in accordance w ith their terms of employment. The housing loans are securedby registered mortgage in favor of the Company. These loans carry mark-up at 5% - 7% (2015: 5% -7%) per annum.
---------------Rupees--------------- CURRENT MATURITY OF NON CURRENT ASSET
Notes to the Financial StatementsFor the year ended December 31 , 2016
205
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
2016 2015
11.1.1 Movement in loan to employees
Opening balance 613,458 1,211,419 Disbursements 963,500 190,500 Repayments (215,885) (788,461) Closing balance 1,361,073 613,458
11.2
2016 2015Note
11.3 Provision for doubtful finances and loans - net
Balance at beginning of the year 5,439,801 5,053,068 Provision for the year 3,740,916 418,255 Reversal for the year (131,384) (31,522) Net provision for the year 3,609,532 386,733 Balance at end of the year 9,049,333 5,439,801
12 NET INVESTMENT IN FINANCE LEASES
Net investment in finance leases 406,932,035 443,242,617 Current portion show n under current assets (334,945,397) (351,439,366)
12.1 71,986,638 91,803,251
---------------Rupees---------------
---------------Rupees---------------
These represent loans to customers for a period of three to five years on mark-up basis and are securedby w ay of hypothecation of stock and immovable property. The rate of mark-up ranges from 11.5% to27.02% (2015: 11% to 27.02%) per annum.
12.1 Net investment in leases
Note Total Total
411,595,179 48,955,152 362,640,027 435,381,223 42,852,505 392,528,718
12.2 220,415,701 31,314,005 189,101,696 241,068,360 53,040,880 188,027,480
632,010,880 80,269,157 551,741,723 676,449,583 95,893,385 580,556,198
(19,615,984) (8,282,519) (11,333,465) (20,887,333) (4,090,134) (16,797,199)
(57,006,870) - (57,006,870) (59,390,248) - (59,390,248) (76,622,854) (8,282,519) (68,340,335) (80,277,581) (4,090,134) (76,187,447) 555,388,026 71,986,638 483,401,388 596,172,002 91,803,251 504,368,751
12.4 (148,455,991) - (148,455,991) (152,929,385) - (152,929,385)
406,932,035 71,986,638 334,945,397 443,242,617 91,803,251 351,439,366
20152016
Net investment in finance leases
----------------------------------------------------------Rupees----------------------------------------------------
One to five year
Not later than five year
One to five year
Not later than five year
Minimum lease paymentsResidual value of leased assets
Gross investment in leases
Unearned lease IncomeMarkup held in Suspense account
Provision for potential lease losses
Notes to the Financial StatementsFor the year ended December 31 , 2016
206
Notes to the Financial StatementsFor the year ended December 31 , 2016
12.1
Net
inve
stm
ent i
n le
ases
Not
eT
otal
Tota
l
411,
595,
179
48,9
55,1
52
362,
640,
027
43
5,38
1,22
3
42
,852
,505
392,
528,
718
12.2
220,
415,
701
31
,314
,005
18
9,10
1,69
6
24
1,06
8,36
0
53
,040
,880
188,
027,
480
632,
010,
880
80
,269
,157
55
1,74
1,72
3
67
6,44
9,58
3
95
,893
,385
580,
556,
198
(19,
615,
984)
(8,2
82,5
19)
(1
1,33
3,46
5)
(2
0,88
7,33
3)
(4
,090
,134
)
(1
6,79
7,19
9)
(57,
006,
870)
-
(5
7,00
6,87
0)
(5
9,39
0,24
8)
-
(59,
390,
248)
(76,
622,
854)
(8
,282
,519
)
(68,
340,
335)
(80,
277,
581)
(4,0
90,1
34)
(76,
187,
447)
555,
388,
026
71
,986
,638
48
3,40
1,38
8
59
6,17
2,00
2
91
,803
,251
504,
368,
751
12.4
(148
,455
,991
)
-
(148
,455
,991
)
(152
,929
,385
)
-
(1
52,9
29,3
85)
406,
932,
035
71
,986
,638
33
4,94
5,39
7
443,
242,
617
91,8
03,2
51
35
1,43
9,36
6
2015
2016
Net
inve
stm
ent i
n fin
ance
leas
es
----
----
----
----
----
----
----
----
----
----
----
----
----
----
--Ru
pees
----
----
----
----
----
----
----
----
----
----
----
----
----
-
Not
late
r tha
n on
e ye
arLa
ter t
han
one
year
and
less
th
an fi
ve y
ears
Late
r tha
n on
eye
ar a
nd le
ss
than
five
yea
rs
Not
late
r tha
n on
e ye
ar
Min
imum
leas
e pa
ymen
tsRe
sidua
l val
ue o
f le
ased
ass
ets
Gro
ss in
vest
men
t in
leas
es
Une
arne
d le
ase
Inco
me
Mar
kup
held
in
Susp
ense
acc
ount
Prov
ision
for p
oten
tial
leas
e lo
sses
207
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
12.1.1
12.2
12.3
2016 2015Note
12.4 Provision for potential lease losses - net
Balance at beginning of the year 152,929,385 159,291,110
Provision for the year 1,205,348 3,815,790 Recovered during the year 12.4.1 (5,678,742) (10,177,515) Net reversal for the year (4,473,394) (6,361,725)
Balance at end of the year 148,455,991 152,929,385
12.4.1 This includes amount w ritten off amounting to Rs. 248,876.
13 LONG TERM DEPOSITS AND PREPAYMENTS
Security deposits against assets acquired under lease arrangements - 775,100 Other deposits 782,222 768,222 Prepayments 382,213 -
1,164,435 1,543,322
14 FIXED ASSETS
Property and equipment 14.1 8,100,442 9,282,095 Intangible assets 14.3 547,284 15,500
8,647,726 9,297,595
---------------Rupees---------------
The internal rate of return (IRR) on lease contract receivable ranges from 8.42% to 28.01% perannum (2015: 8% to 29% per annum).
These represent interest free security deposits received against lease contracts and are refundable /adjustable at the expiry / termination of the respective leases. The amount is net of security depositheld against matured leases amounting to Rs. 147.31 million (2015: Rs. 251.81 million).
Lease rentals received during the year aggregate to Rs. 145.305 million (2015: Rs. 123 million). Leasedisbursed during the year amounts to Rs. 80.226 million (2015: Rs. 32.112 million)
Based on the NBFC Regulation, the aggregate net exposure in finance lease against w hich incomesuspension is required amounted to Rs. 250.01 million (2015: Rs. 274.481 million).
Notes to the Financial StatementsFor the year ended December 31 , 2016
208
SME
LE
ASIN
G L
IMIT
ED
NO
TE
S T
O T
HE
FIN
ANCI
AL S
TAT
EM
EN
TS
FOR
TH
E Y
EAR
EN
DE
D D
ECE
MBE
R 3
1, 20
16
14.1
Prop
erty
and
equ
ipm
ent -
ow
n us
e
%O
wne
d Fu
rnitu
re an
d fix
ture
s1,8
14,2
14
46
8,70
0
(774
,531
)
1,5
08,3
83
20
1,655
,631
53,9
03
(774
,531
)
-
93
5,00
3
573,
380
Off
ice eq
uipm
ent
1,329
,903
18,8
10
(1
68,8
49)
1,179
,864
15
903,
084
82
,114
(1
66,6
30)
-
818,
568
36
1,296
Build
ing
impr
ovem
ents
784,
969
-
(3
4,03
6)
750,
933
33
.33
740,
860
40
,709
(3
4,03
6)
-
747,
533
3,
400
Off
ice p
rem
ises
9,51
4,19
0
-
-
9,
514,
190
5
3,78
6,98
8
47
5,72
0
-
-
4,
262,
708
5,25
1,482
Com
puter
s1,6
72,8
25
93
,282
(3
36,6
71)
1,429
,436
33.3
31,4
06,8
19
13
3,97
9
(3
36,6
71)
1,204
,127
225,
309
Vehi
cles
4,25
0,18
4
1,7
32,5
00
(3
64,5
34)
5,61
8,15
0
203,
956,
369
198,
699
(364
,534
)
1,1
26,12
4
4,
916,
658
701,4
92
-
19,3
66,2
85
2,31
3,29
2
(1
,678
,621
)
20,0
00,9
56
12
,449
,751
98
5,12
4
(1
,676
,402
)
1,126
,124
12,8
84,5
97
7,
116,
359
Le
ased
Vehi
cles
3,87
5,50
0
(1
,732
,500
)
-
2,14
3,00
0
20
1,509
,940
775,
101
-
(1,12
6,12
4)
1,158
,917
98
4,08
3
23
,241
,785
58
0,79
2
(1,6
78,6
21)
22
,143,
956
13,9
59,6
91
1,760
,225
(1
,676
,402
)
-
14,0
43,5
14
8,
100,
442
%O
wne
d
Furn
iture
and
fixtu
res
1,68
2,41
6
13
1,79
8
-
1,81
4,21
4
201,
627,
327
28,3
04
-
-
1,65
5,63
1
15
8,58
3
Off
ice eq
uipm
ent
1,11
0,08
9
34
5,19
8
(125
,384
)
1,
329,
903
15
966,
023
62
,445
(1
25,3
84)
-
90
3,08
4
426,
819
Build
ing
impr
ovem
ents
824,
862
-
(3
9,89
3)
784,
969
33.3
374
0,04
8
40,7
05
(39,
893)
-
74
0,86
0
44,1
09
Off
ice p
rem
ises
9,51
4,19
0
-
-
9,
514,
190
5
3,31
1,27
8
47
5,71
0
-
-
3,
786,
988
5,72
7,20
2
Com
puter
s1,
421,
635
251,
190
-
1,
672,
825
33
.33
1,32
2,22
2
84
,597
-
1,
406,
819
266,
006
Own
ed V
ehicl
es3,
998,
184
950,
000
(6
98,0
00)
4,25
0,18
4
203,
755,
436
210,
333
(500
,233
)
490,
833
3,
956,
369
293,
815
18,5
51,3
76
1,67
8,18
6
(8
63,2
77)
19,3
66,2
85
11
,722
,334
90
2,09
4
(6
65,5
10)
49
0,83
3
12,4
49,7
51
6,
916,
535
Le
ased
Vehi
cles
4,82
5,50
0
(9
50,0
00)
-
3,
875,
500
20
1,22
5,67
3
77
5,10
0
-
(4
90,8
33)
1,50
9,94
0
2,
365,
560
23,3
76,8
76
728,
186
(8
63,2
77)
23,2
41,7
85
12
,948
,007
1,
677,
194
(6
65,5
10)
-
13
,959
,691
9,28
2,09
5
NET
BO
OK
VA
LUE
----
----
----
----
----
----
-- (
R u
p e e
s ) -
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
- ( R
u p
e e s
) --
----
----
----
----
----
----
----
----
----
---
As at
Janu
ary
1, 2
015
Char
ge fo
r th
e yea
rO
n di
spos
alTr
ansf
er A
s at D
ec 3
1,
2015
As at
Dec
31,
20
15As
at Ja
nuar
y 1,
201
5Ad
ditio
ns/
Tran
sfer
Disp
osal
As at
Dec
31,
20
15D
epre
ciatio
n Ra
te
C O
S T
Char
ge fo
r th
e ye
arO
n di
spos
alT
rans
fer
ACCU
MU
LATE
D D
EPRE
CIAT
ION
As a
t Dec
31,
20
16
----
----
----
----
----
----
- ( R
u p
e e
s ) -
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
- ( R
u p
e e
s ) -
----
----
----
----
----
----
----
----
----
----
C O
S T
As a
t Jan
uary
1,
2016
Addi
tions
/ T
rans
fer
Disp
osal
As a
t Dec
31,
2016
Dep
reci
atio
n R
ate
As a
t Ja
nuar
y 1,
2016
NE
T B
OO
K VA
LUE
ACCU
MU
LAT
ED
DE
PRE
CIAT
ION
As a
t Dec
31,
2016
Notes to the Financial StatementsFor the year ended December 31 , 2016
209
14.2
Parti
cula
rs o
f dis
posa
l of p
rope
rty a
nd e
quip
men
t
Build
ing
impr
ovem
ent
34,0
33
-
958
95
8
Tend
erG
hulam
Abb
as
Offi
ce e
quip
men
t16
8,84
9
2,21
9
6,
831
4,61
2
Te
nder
Ghu
lam A
bbas
Ow
ned
vehi
cles
364,
534
-
33
8,00
0
338,
000
Te
nder
Abr
ar H
ussa
in
Furn
iture
& fi
xtur
e77
4,53
1
-
21,7
96
21,7
96
Tend
erG
hulam
Abb
as
Com
pute
rs33
6,67
0
-
16,4
15
16,4
15
Tend
erG
hulam
Abb
as31
Dec
embe
r 201
61,6
78,6
17
2,21
9
384,
000
381,7
81
31 D
ecem
ber 2
015
863,
277
19
7,76
7
333,
500
13
5,73
3
14.3
Inta
ngib
le a
sset
sN
ET
BO
OK
VALU
EAs
at
Janu
ary
1, 20
16Ad
ditio
nsAs
at
Dec
embe
r 31
, 201
6
As a
t Ja
nuar
y 1,
2016
Char
ge fo
r th
e ye
ar
As a
t D
ecem
ber
31, 2
016
As a
t D
ecem
ber
31, 2
016
807,
142
700,
000
1,507
,142
33
%79
1,642
168,
216
959,
858
547,
284
NE
T BO
OK
V
ALU
E
As a
t Jan
uary
1,
201
5A
dditi
ons
As a
t D
ecem
ber
31, 2
015
As a
t Jan
uary
1,
201
5Ch
arge
for
the
year
As a
t D
ecem
ber
31, 2
015
As a
t D
ecem
ber
31, 2
015
807,
142
-
80
7,14
2
33%
769,
663
21
,979
79
1,64
2
15,5
00
------
------
------
------
------
------
-- (R
upee
s) --
------
------
------
------
------
------
--
Softw
are
licen
ses a
nd
licen
ses
Amor
tizat
ion
rate
(%)
Softw
are
licen
ses a
nd
licen
ses
Am
ortiz
atio
n ra
te (%
)
ACCU
MU
LAT
ED
AM
OR
TIZ
ATIO
NCO
ST
ACC
UM
ULA
TED
AM
ORT
IZA
TIO
N
------
------
------
- (R
upee
s) --
------
------
----
------
------
------
- (R
upee
s) --
------
------
----
------
------
------
- (Ru
pees
) ----
------
------
-----
------
------
---- (
Rupe
es) -
------
------
-----
COST
Parti
cula
rs
of b
uyer
sCo
stW
DV
Sale
Pr
ocee
dG
ain
on
disp
osal
Mod
e of
di
spos
alNotes to the Financial StatementsFor the year ended December 31 , 2016
210
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
2016 2015Note
15 ACCRUED AND OTHERS PAYABLES
Accrued liabilities 505,935 998,362 Rentals received in advance 317,928 110,000 Payable on termination / maturity of leases 316,120 1,172,293 Insurance payable 2,683,735 3,635,128 Unclaimed dividend 20,629 20,629 Others 321,963 130,331
4,166,310 6,066,743
16 ACCRUED MARK-UP ON BORROWINGS
Interest accrued on: - Short term borrow ings 16.1 959,922 1,171,429
16.1 The amount represents accrued interest payable to the holding company.
17 SHORT TERM BORROWING
2016 2015Note
18
Long term finance 18.1 373,233 373,233 Liabilities against assets subject to finance lease 20 601,306 1,374,233 Long term deposits 12.1 189,101,696 188,027,480
190,076,235 189,774,946
18.1
The Company has a running finance facility available from the holding company amounting to Rs.150 million (2015: Rs.150 million) at mark-up rates ranging betw een 9.96% to 10.71% (2015:10.71% to 13.49%) per annum. Above arrangements are secured by w ay of hypothecation of theCompany's specific leased assets and related receivables of the Company. Further, the said facility canbe extended to the extent of Rs. 300 million (2015: Rs. 300 million) as per the stand-by agreementfor finance facility.
This represents balance due against financing facilities amounting to Rs. 0.373 million (2015: Rs. 7.3million) from National Energy Conservation Centre (Enercon). The facilities from Enercon have been obtained under an agreement w hereby they have agreed to provide funds to the Company forgranting lease / finance facility to its customers for procuring and using energy efficient equipments.The facility carries mark-up at the rate of 5% per annum payable on quarterly basis subject to thecondition that the Company w ill provide lease /finance facility to its customers at a preferential mark-up rate.
---------------Rupees---------------
---------------Rupees--------------- CURRENT MATURITY OF NON-CURRENT LIABILITIES
Notes to the Financial StatementsFor the year ended December 31 , 2016
211
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
2016 201519 PROVISION FOR COMPENSATED ABSENCES
Changes in present value of defined benefit obligations
Present value of defined benefit obligations- Opening 1,069,901 1,033,768 Current service cost 674,304 94,452 Past service cost (credit) 1,029,358 - Interest cost on defined benefit obligation 66,808 73,333 Benefits paid (803,641) (763,832) - Experience adjustments 65,547 632,180 Present value of defined benefit obligations- Closing 2,102,277 1,069,901
Expenses to be charged to Profit and Loss account
Current service cost 674,304 94,452 Past service cost 1,029,358 - Experience adjustments 65,547 632,180 Interest cost on defined benefit obligation 66,808 73,333 Expense chargeable to Profit and Loss account 1,836,017 799,965
2016 2015Changes in net liability ---------------Rupees---------------
Balance sheet liability/(asset)- Opening 1,069,901 1,033,768 Expenses chargeable to Profit and loss account 1,836,017 799,965 Benefits paid (803,641) (763,832) Balance sheet liability/(asset)- Closing 2,102,277 1,069,901
20 LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE
---------------Rupees---------------
607,199 5,893 601,306 1,477,040 102,807 1,374,233
- - - 606,870 5,893 600,977
607,199 5,893 601,306 2,083,910 108,700 1,975,210
Payable later thanone year but notlater than five years
Payable not laterthan one year
-------------------------------------- (Rupees) --------------------------------------
2016 2015
Minimum
lease payments
Financial charges
for future periods
Principal outstanding
Minimum lease
payments
Financial charges for
future periods
Principal outstanding
Notes to the Financial StatementsFor the year ended December 31 , 2016
212
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
20.1
21 DEFINED BENEFIT OBLIGATION
Principal actuarial assumptions
2016 2015Valuation Discount rate 9.50% 10.00%Expected long term rate of increase in salary level 9.50% 10.00%
2016 201521.1 Liability in balance sheet Note
Present value of defined benefit obligation 5,152,857 4,890,705
21.2 Movement in liability during the year Opening balance 4,890,705 4,306,467 Charged to profit and loss account 21.4 1,190,713 1,089,922
21.5 (67,827) 106,316 Benefits paid during the year (860,734) (612,000) Closing balance 5,152,857 4,890,705
21.3 Reconciliation of the present value of defined benefit obligationsPresent value of obligations as at 1 January 4,890,705 4,606,467Current service cost 744,679 639,869Interest cost 446,034 466,928Benefits paid during the year (860,734) (612,000)
(67,827) (210,559)Present value of obligations as at 31 December 5,152,857 4,890,705
---------------Rupees---------------
The finance lease arrangements have been entered into w ith Commercial Banks & LeasingCompanies for vehicles. Lease rentals are payable in monthly installments at mark-up rates rangingfrom 14.39% to 15.10% per annum (2015: 14.39% to 15.10% per annum). These finance leasearrangements w ill mature in the year 2017. At the end of lease term, the Company has the optionto acquire the assets subject to the adjustment of security deposit w hich it intends to exercise.
The Company operates an unapproved and unfunded gratuity scheme for all of its permanentemployees. Number of employees covered under the scheme are 28 (2015:32).
The latest actuarial valuation of the gratuity scheme w as carried out on 31 December 2016 byNauman Associates using the Projected Unit Credit Method. The follow ing significant assumptionsw ere used for valuation of the scheme:
Remeasurements gain chargeable in other comprehensive income
Remeasurement gain chargeable in other comprehensive income
Notes to the Financial StatementsFor the year ended December 31 , 2016
213
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
2016 201521.4 Charge for the year
Current services cost 744,679 639,869 Interest cost 446,034 466,928
1,190,713 1,106,797
21.5 Re-measurements recognized in other comprehensive incomeActuarial losses / (gains) on obligation (3,674) - Experience adjustment (64,153) (210,559)
(67,827) (210,559)
21.6 Sensitivity analysis
21.7 Key statistics 2016 2015Average age 41.1 39.4Average service 8.5 7.6Average entry age 32.6 31.8Retirement assumption age 60 years 60 yearsMortality rates
Discount rate effect Rupees Rate effectOriginal liability 5,152,857 9.5%1% increase 4,651,522 10.5%1% decrease 5,738,443 8.5%
Salary increase rate effect
Original liability 5,152,857 9.5%1% increase 5,740,526 10.5%1% decrease 4,640,301 8.50%
SLIC 2001 - 2005
SLIC 2001 - 2005 Set back 1 year
Set back 1 year
The sensitivity analysis prepared presented above may not be representative of the actual change inthe defined benefit obligation as it is unlikely that the change in assumptions w ould occur inisolation of one another as some of the assumptions may be correlated.
---------------Rupees---------------
Sensitivity analysis has been performed by varying one assumption keeping all other assumptionsconstant and calculating the impact on the present value of the defined benefit obligations under theemployee benefit schemes. The increase / (decrease) in the present value of defined benefitobligations as a result of change in each assumption is summarized below :
Total re-measurement gain recognized in other comprehensive income
Notes to the Financial StatementsFor the year ended December 31 , 2016
214
21.8 Maturity profile 2016 2015The weighted average duration of the obligation (in years) 11 11
22 ISSUED, SUBSCRIBED AND PAID-UP SHARE CAPITAL
2016 2015 2016 2015
10,100,000 10,100,000 Ordinary shares of Rs. 10 each issued as fully paid in cash 101,000,000 101,000,000
19,900,000 19,900,000
199,000,000 199,000,000
2,000,000 2,000,000 20,000,000 20,000,000
32,000,000 32,000,000 320,000,000 320,000,000
22.1
2016 201523 CONTINGENCIES AND COMMITMENTS Note
23.1 Contingencies
There are no contingencies as at year end (2015: Nil)
23.2 Commitments
23.2.1 Lease disbursements 23.2.1.1 2,300,000 14,466,000
23.2.1.1 This represents those leases which have been approved by the Company as at the year end.
23.2.2 Commitments in respect of rent agreements are as follows:
2016 2015
1,981,474 693,740 622,125 266,200
2,603,599 959,940
24 INCOME FROM LEASING OPERATIONSLeasesIncome from finance lease 23,066,962 21,239,032 Gain on termination of leases - net - 169,802
23,066,962 21,408,834 Income on finances and loans to customers 9,464,198 6,290,685
32,531,160 27,699,519
(Number of shares)
At 31 December 2016 SME Bank Limited (holding company) and its nominees hold 73.14%(2015: 73.14%) ordinary shares of the Company.
Ordinary shares of Rs. 10 eachissued as fully paid forconsideration other than cash
Ordinary shares of Rs 10 eachissued as fully paid bonus shares
---------------Rupees---------------
---------------Rupees--------------- Not later than one yearLater than one year
---------------Rupees---------------
Notes to the Financial StatementsFor the year ended December 31 , 2016
215
2016 2015
25 PROFIT ON BANK ACCOUNTS / RETURN ON INVESTMENTSProfit on redemption of Namco Mutual Fund 1,569,478 - Profit on bank accounts 23,949 18,881 Dividend income 196,624 -
1,790,051 18,881 26 OTHER INCOME
Income from financial assetsMark-up on loans to employees 42,111 34,987 Income from non-financial assetsGain on disposal of fixed assets 3,051,795 135,733
3,093,906 170,720 Restated
2016 2015Note
27 ADMINISTRATIVE & GENERAL
Salaries, allowances and other benefits 27.1 23,113,976 21,737,404 Legal and professional 2,723,275 3,225,960 Rent 2,608,283 2,201,473 Depreciation and amortization 14.1 & 14.3 1,928,441 1,699,173 Travelling, conveyance and entertainment 1,078,632 2,033,313 Electricity, gas and water 957,054 868,451 Telephone and postage 891,216 885,428 Insurance 877,347 949,352 Printing and stationery 740,157 678,681 Provision for other receivables 630,770 1,073,936 Miscellaneous 27.5 562,052 588,230 Repairs and maintenance 503,857 434,924 Auditors' remuneration 27.4 467,325 540,125 Directors' fee 27.3 450,000 500,000 Advertising 233,623 369,641 Vehicle running 221,205 406,638 Commission and brokerage charges 77,850 - Books and periodicals 31,758 37,994 Training and development 14,300 132,500 Fees and subscriptions - 15,551
38,111,121 38,378,774
27 2016 2015
1,190,713 1,106,796 591,606 569,757 1,836,017 799,965
Staff provident fundCompensated absences
Salaries allowances and other benefits includes:
---------------Rupees---------------
Salaries allowances and other benefits
Staff gratuity scheme
---------------Rupees---------------
---------------Rupees---------------
Notes to the Financial StatementsFor the year ended December 31 , 2016
216
27.2 Remuneration of Chief Executive Officer, Directors and Executives
The aggregate amount charged in the financial statements, including all benefits, to the Chief Executiveand Executives of the Company are as follows:
Managerial remuneration 2,590,000 3,573,430 1,903,226 3,763,080 Housing and utilities 1,080,000 1,445,537 761,290 1,505,232 Provident fund - 284,652 - 301,128 Medical and other perquisites 259,000 374,831 190,323 376,296 Gratuity 352,000 323,140 - 218,623 Leave encashment 165,000 218,393 150,000 165,430 Leave fare assistance 330,000 - Others - 57,500 - -
4,776,000 6,277,483 3,004,839 6,329,789
Number of persons 1 7 1 7
27.3
27.4 Auditors' remuneration 2016 2015
Annual audit 250,000 250,000 Half yearly review 50,000 100,000 Other certifications 50,000 50,000 Out of pocket expenses 117,325 140,125
467,325 540,125
27.5
2016 201528 FINANCE COST Note
Mark-up on:- Long term finance - 96,702 - Short term borrowings 28.1 13,010,647 17,164,534
13,010,647 17,261,236
Lease finance charges 118,747 266,062 Bank charges 95,374 138,039
13,224,768 17,665,337
This includes penalty amounting to Rs. 66,000 paid to State Bank of Pakistan for error in filing of monthly CIB report.
---------------Rupees---------------
---------------Rupees---------------
2016 2015
---------------------- (Rupees) ----------------------
This represents remuneration paid to the non-executive directors of the Company for attending meetingsof the Board and Board's committees.
The chief executive and certain executives were also provided with free use of Company owned andmaintained cars in accordance with their terms of employment.
Chief Executive
Officer
Chief Executive Officer Executives Executives
Notes to the Financial StatementsFor the year ended December 31 , 2016
217
28.1 Finance cost includes mark up expense related to the holding company as follows:2016 2015
Short term borrowings 13,010,647 17,164,534
29 TAXATION
29.1 Current tax liability
29.2 Current status of tax assessments
29.3
30 LOSS PER SHARE - BASIC AND DILUTED 2016 2015
Loss for the year attributable to ordinary shareholders (13,382,222) (18,385,681)
Weighted average number of outstanding ordinary shares 32,000,000 32,000,000
2016 2015
Loss per share - basic and diluted (0.42) (0.57)
30.1
31 TRANSACTIONS WITH RELATED PARTIES
---------------Rupees---------------
---------------Rupees---------------
No figure for diluted earnings per share has been presented as the Company has not issued anyinstrument which would have an impact on earnings per share when exercised.
The related parties of the Company include of SME Bank Limited (holding company), Staff Providentfund, directors, key management personnel and non- executive directors:
-------(Number of shares)------
Provision for the current year income tax liability has been made under the provisions of minimumtax under Section 113 of the Income Tax Ordinance, 2001 (Ordinance).
The income tax assessments of the Company for tax year 2012 has been selected for tax audit u/s214 C of Income tax ordinance 2001.
In respect of Tax year 2012, the tax authorities have served order under section 122(1) read withsection 177(1) and 214C of the Income Tax Ordinance, 2001 disallowing expenses relating todepreciation allowance, markup on loan to employees and financial cost and creating tax demand ofRs. 3.8 million. The Company filed an appeal before the Commissioner Inland Revenue (Appeals-II)against the said order who decided all the issues in favor of the company except for initial allowanceon leased asset. Company has filed second appeal and the appeal has not yet been fixed for hearing.
Deferred tax asset of Rs. 96.159 million (2015: Rs. 99.215 million) has not been recognized as theCompany does not foresee future taxable profits against which unused tax losses will be utilized.
---------------Rupees---------------
Notes to the Financial StatementsFor the year ended December 31 , 2016
218
2016 2015
BalancesSME Bank Limited (holding company)Short term borrowing 104,838,931 129,066,524
Staff Provident FundReceivable from staff provident fund - 80,000
TransactionsSME Bank Limited (holding company)Mark up expense for the period 13,010,647 17,164,534 (Utilization)/Repayment of short term borrowing facility (24,227,593) (26,253,553) Rent expense 425,000 325,608
Key management personnelKey management remuneration 6,381,780 4,530,639 Post retirement benefit 497,400 - Staff Provident FundCompany's contribution towards provident fund 26,864 89,376
32 PROVIDENT FUND
Size of the fund (Net Assets) 4,255,720 4,940,125 Cost of Investment made 3,999,253 3,640,687 Percentage of investment made 93.97% 73.70%Fair value of investments 4,164,395 3,999,252
All the investments of the provident fund are kept in mutual funds.
2016 201533 CASH AND CASH EQUIVALENTS Note
Cash and bank balances 5 2,519,445 3,115,209 Short term borrowings 17 (104,838,931) (129,066,524)
(102,319,486) (125,951,315)
34 FINANCIAL RISK MANAGEMENT
Introduction and overview
The Company has exposure to the following risks from financial instruments:
- credit risk- liquidity risk- market risk
---------------Rupees---------------
This note presents information about the Company’s exposure to each of the above risks, the Company’sobjectives, policies and processes for measuring and managing it.
Investments out of provident fund have been made in accordance with the provisions of the section 227of the Companies Ordinance, 1984 and the rules formulated for this purpose.
---------------Rupees---------------
Notes to the Financial StatementsFor the year ended December 31 , 2016
219
Notes to the Financial StatementsFor the year ended December 31 , 2016
34.1 Risk management framework
34.2 Credit risk
34.2.1 Management of credit risk
34.2.2 Exposure to credit risk
NoteBank balances 5 2,463,033 2,439,602 3,091,778 3,025,366 Investments - - 4,283,091 4,283,091 Advances 6 2,668,119 2,668,119 2,484,094 2,484,094 Accrued interest on working capital loans 3,752 - 13,843 - Net investment in finance lease 12 406,932,035 406,932,035 443,242,617 443,242,617 Long term finances and loans 11 80,287,519 80,287,519 98,725,563 98,725,563 Short term and long term deposits 7 & 13 2,531,514 2,531,514 1,842,158 1,842,158
494,885,972 494,858,789 553,683,144 553,602,889
34.2.3 Credit ratings and Collaterals
Ratings 2016 2015
A1+ 29.44% 13.00%A-1+ 70.56% 50.00%Others 0.00% 37.00%
100% 100%
34.2.4 Description of Collateral held
Details of exposures and the collateral as at December 31, 2016 against them are as follows:Net Lower of
Exposure collateral and grossexposure
Lease Finance - Regular 105,500,922 105,500,922 - Non Performing net of provision 301,431,113 301,431,113
406,932,035 406,932,035 Working Capital Finance - Regular 16,639,190 16,639,190 - Non Performing net of provision 62,287,256 62,287,256
78,926,446 78,926,446
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financialloss, without taking into account the fair value of any collateral. Concentration of credit risk arises when a number of counter parties are engagedin similar business activities or have similar economic features that would cause their ability to meet contractual obligations to be similarlyaffected by changes in economics, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Company'sperformance to developments affecting a particular industry.
The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Company’s riskmanagement policies. The committee reports regularly to the Board of Directors on its activities.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limitsand controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes inmarket conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
----------Rupees---------
------------------------------------------ (Rupees) -----------------------------------
In summary, compared to the maximumamount included in the balance sheet, the maximumexposure to credit risk as at December 31, 2016 is asfollows:
Details of the credit ratings of balances with the banks (including profit receivable) as at December 31, were as follows:
The Company's policy is to enter into financial contracts in accordance with the internal risk management policies and the requirements of theNBFC Rules and Regulations. The Company attempts to control credit risk by monitoring credit exposures, limiting transactions with specificcounter parties, and continually assessing the credit worthiness of counter parties.
2016 2015Balance sheet Maximum
exposureBalance sheet Maximum
exposure
The Company's leases are secured against assets leased out. In a few leases additional collateral is also obtained.
220
Settlement risk
34.2.5 Impairment losses and past due balances
Not past due 115,955,066 17,630,587 98,324,479 - 1 - 179 days 53,013,277 264,285 52,748,992 - 180 days - 1 year 2,201,888 - 2,201,888 - More than 1 year 315,922,884 70,080,907 402,112,667 (156,270,690)
487,093,115 87,975,779 555,388,026 (156,270,690)
Not past due 155,955,983 20,795,532 135,160,451 - 1 - 179 days 83,017,680 32,717,148 50,300,532 - 180 days - 1 year 25,985,262 17,443,965 8,541,297 - More than 1 year 276,395,162 32,595,261 402,169,087 (158,369,186)
541,354,087 103,551,906 596,171,367 (158,369,186)
34.2.6 Concentration of credit risk - gross investment in finance lease
The management of the Company follows two sets of guidelines. Internally, it has its own policiesand procedures duly approved by the Board of Directors whereas externally it adheres to theregulations issued by the SECP. The operating policy defines the extent of fund based exposures withreference to a particular sector or group of leases.
2015Total Loans and
receivablesNet
investment in Impairment recognized
----------------------------------------- (Rupees) --------------------------------------
----------------------------------------- (Rupees) --------------------------------------
To reduce the exposure to credit risk the Company has developed a formal approval process wherebycredit limits are applied to its customers. The management continuously monitors the credit exposuretowards the customers and makes provision against those balances considered doubtful of recovery(and also obtains security / advance payments, wherever considered necessary). Cash is held only with reputable banks with high quality credit worthiness.
This risk is addressed more or less in accordance with the parameters set out in the credit riskmanagement above.
Settlement risk is the risk of loss due to the failure of an entity to honor its obligations to deliver cashor other assets as contractually agreed on sale.
The Company seeks to manage its credit risk through diversification of financing activities to avoidundue concentration of credit risk with individuals or groups of customers in specific locations orbusiness sectors. It also obtains collaterals when appropriate.
2016Total Loans and
receivablesNet
investment in finance
lease
Impairment recognized
Notes to the Financial StatementsFor the year ended December 31 , 2016
221
Rupees Percentage Rupees Percentage
Cargo carriers 28,855,377 3.87 38,012,108 4.69 Chemicals 10,131,737 1.36 20,658,876 2.55 Communication 6,802,623 0.91 6,802,623 0.84 Confectionary 10,440,318 1.40 10,440,318 1.29 Construction and building products 11,271,745 1.51 9,972,339 1.23 Dates 565,867 0.08 550,947 0.07 Education 24,560,264 3.29 26,380,027 3.25 Engineering 21,151,793 2.84 24,269,640 2.99 Entertainment 47,063,784 6.31 52,792,056 6.51 Film processing 58,643,945 7.86 60,260,116 7.43 Fisheries 1,285,857 0.17 1,285,857 0.16 Food and beverages 51,478,238 6.90 49,588,143 6.11 Furniture 1,971,122 0.26 2,480,157 0.31 Garments 45,408,420 6.09 45,460,501 5.60 Gems and jewelry 13,917,062 1.87 13,921,662 1.72 Health care 70,301,198 9.43 50,677,697 6.25 Leather and tannery 15,364,218 2.06 15,364,218 1.89 Miscellaneous 65,080,809 8.73 64,479,172 7.95 Oil and gas 49,338,622 6.62 54,241,689 6.69 Pharma 14,180,800 1.90 17,950,954 2.21 Plastic 14,571,380 1.95 22,275,668 2.75 Printing and packaging 53,162,277 7.13 52,806,596 6.51 Public transport services 112,232,630 15.05 120,323,223 14.83 Rubber 230,036 0.03 614,190 0.08 Textile 17,731,083 2.38 49,502,038 5.90
745,741,205 100 811,110,815 100
34.3 Liquidity risk
34.3.1 Management of liquidity risk
2016 2015
Details of the composition of leases and loans and finances portfolio of the Company are given below:
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations asthey fall due. Liquidity risk arises because of the possibility that the Company could be required to pay itsliabilities earlier than expected or may face difficulty in raising funds to meet commitments associated withfinancial liabilities as they fall due.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always havesufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, withoutincurring unacceptable losses or risking damage to the Company's reputation. Due to nature of thebusiness, the Company maintains flexibility in funding by maintaining committed credit lines available. TheCompany’s liquidity management involves projecting cash flows and considering the level of liquid assetsnecessary to fulfill its obligation; monitoring balance sheet liquidity ratios against internal and externalrequirements and maintaining debt financing plans.
Notes to the Financial StatementsFor the year ended December 31 , 2016
222
34.3.2 Maturity analysis for financial liabilities
LiabilitiesAccrued and other liabilities 4,166,310 4,166,310 4,166,310 - Short term borrowings 104,838,931 104,838,931 104,838,931 - Long term finances - secured 373,233 373,233 373,233 - Long term deposits 220,415,701 220,415,701 189,101,696 31,314,005
601,306 607,199 607,199 - Markup accrued 959,922 959,922 959,922 -
331,355,403 331,361,296 300,047,291 31,314,005
LiabilitiesTrade and other payables 6,066,743 6,066,743 6,066,743 - Short term borrowings 129,066,524 129,066,524 129,066,524 - Long term finances - secured 373,233 373,233 373,233 Long term deposits 241,068,360 241,068,360 188,027,480 53,040,880 Liabilities against asset subject to finance lease 1,975,210 2,083,910 1,477,040 606,870
378,550,070 378,658,770 325,011,020 53,647,750
34.4 Market risk
The Company is exposed to interest rate and other price risk only.
34.4.1 Management of market risk
The table below analyses the Company's financial liabilities into relevant maturity groupings based onthe remaining period at the balance sheet date to maturity date and represents the undiscounted cashflows. The amounts in the table are the gross nominal undiscounted cash flows (including interestpayments).
The objective of market risk management is to manage and control market risk exposures withinacceptable parameters, while optimizing the return on risk. The Company manages the market risk bymonitoring exposure on marketable securities by following internal risk management policies andregulations laid down by the Securities and Exchange Commission of Pakistan.
Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will effect theCompany’s income or the value of its holdings of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptable parameters, whileoptimizing the return on risk.
2015 Total Contractual
cash flow Up to one
year More than
one year ---------------------------------------------- (Rupees) ------------------------------
2016 Total Contractual
cash flow Up to one
year More than
one year ---------------------------------------------- (Rupees) ------------------------------
Liabilities against asset subject to finance lease
Notes to the Financial StatementsFor the year ended December 31 , 2016
223
34.4.2 Interest rate risk
Rate 2016 2015Fixed rate instruments
Financial assetsNet investments in finance lease 8.42%-28.01% 406,932,035 443,242,617 Long term finance and loans 8.42%-28.01% 80,287,519 98,725,563
487,219,554 541,968,180
Financial liabilitiesLong term finance 373,233 373,233 Liabilities against assets subject to finance lease 15.01% 601,306 1,975,210
974,539 2,348,443
Variable rate instruments
Financial assetsBank balances 4% 139,384 295,825
139,384 295,825
Financial liabilitiesShort term borrowings 9.95% 104,838,931 129,066,524
104,838,931 129,066,524
34.4.3 Fair value sensitivity analysis for fixed rate instruments
34.4.4 Cash flow sensitivity analysis for variable rate instruments
Carrying amount
The sensitivity analysis prepared as of December 31, 2016 is not necessarily indicative of the impacton the Company's net assets of future movements in interest rates and profit for the year and assets /liabilities of the Company.
A change of 100 basis points in interest rates at the reporting date would have increased / (decreased)profit or loss by Rs. 1.047 million (2015: Rs.1.288 million). This analysis assumes that all othervariables, remain constant. The analysis is performed on the same basis which were used for the yearended December 31, 2015.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in market interest rates. Majority of the interest rate exposure arises oninvestment in finance lease, finance and loans, bank balances and borrowing from banks. TheCompany carries a mix of fixed and floating rate financial instruments.
At December 31, details of the interest rate profile of the Company's interest bearing financialinstruments were as follows:
The Company does not account for any fixed rate financial assets and liabilities at fair value throughprofit and loss. Therefore, a change in interest rates at the reporting date would not affect profit andloss account.
---------------Rupees---------------
Notes to the Financial StatementsFor the year ended December 31 , 2016
224
34.4.5 Interest rate gap position
Yield / interest rate sensitivity position for on balance sheet financial instruments based on the earlier of contractual re-pricing ormaturity date is as follows:
Financial assets
Cash and bank balances 4 139,384 139,384 - - Long term finances and loans 11.5-27.2 80,287,519 57,870,383 15,164,186 7,252,950 Net investment in finance lease 8.42-28.01 406,932,035 279,618,645 54,411,206 72,902,184
Total financial assets as on December 31, 2016 487,358,938 337,628,412 69,575,392 80,155,134
Financial liabilities
Short term borrowings 9.96-10.71 104,838,931 - 104,838,931 - Long term finances 373,233 373,233 - - Liabilities against asset subject to finance lease 14.39-23 601,306 28,360 572,946 -
Total financial liabilities as on December 31, 2016 105,813,470 401,593 105,411,877 -
On balance sheet gap 381,545,468 337,226,819 (35,836,485) 80,155,134 Total interest rate sensitivity gap 381,545,468 337,226,819 301,390,334 381,545,468
Financial assets
Cash and bank balances 4.5 - 6 295,825 295,825 - - Long term finances and loans 11-27.2 98,725,563 33,429,079 47,915,708 17,380,776 Net investment in finance lease 8-29 443,242,617 250,281,131 101,158,235 91,803,251
Total financial assets as on 31 December 2015 542,264,005 284,006,035 149,073,943 109,184,027
Financial liabilities
Short term borrowings 10.79 - 13.49 129,066,524 - 129,066,524 - Long term finances 5 373,233 373,233 - - Liabilities against asset subject to finance lease 14.39-15.10 1,975,210 276,531 1,097,702 600,977
Total financial liabilities as on 31 December 2015 131,414,967 649,764 130,164,226 600,977
On balance sheet gap 410,849,038 283,356,271 18,909,717 108,583,050 Total interest rate sensitivity gap 410,849,038 283,356,271 302,265,988 410,849,038
2016Effective
mark-up / interest /
profit rate %
Total Exposed to mark-up / interest / profit rate risk Upto three
months More than
three months and up to one
year
More than one year
Upton three months
More than three months and up to one
More than one year
-------------------------------- (Rupees) ---------------------------------
-------------------------------- (Rupees) ---------------------------------
2015Effective
mark-up / interest /
profit rate %
Total Exposed to mark-up / interest / profit rate risk
Notes to the Financial StatementsFor the year ended December 31 , 2016
225
34.5 Price risk
35 CAPITAL RISK MANAGEMENT
35.1
35.2
35.3
2016 2015
Total debt 373,233 373,233 Total equity 156,955,567 170,269,962 Total capital employed 157,328,800 170,643,195 Gearing ratio 0.24% 0.22%
35.4 Financial risk management objectives and policies
36 FINANCIAL INSTRUMENTS
The table below analyses recurring fair value measurements for financial assets and financial liabilities.These fair value measurements are categorized into different levels in the fair value hierarchy based onthe inputs to valuation techniques used. The different levels are defined as follows:
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuatebecause of changes in market prices (other than those arising from interest risk or currency risk)whether those changes are caused by factors specific to the individual financial instrument or its issuer,or factors affecting all similar financial instruments traded in the market. Presently, the Company is notexposed to equity securities price risk as the Company does not hold any equity securities as atDecember 31, 2016.
The Company's prime objective when managing capital is to safeguard its ability to continue as a goingconcern in order to provide adequate returns for shareholders and benefits for other stakeholders andto maintain an optimal capital structure to reduce its cost of capital.Consistent with others in the industry, the Company monitors capital on the basis of the gearingratio.This ratio is calculated as total debt divided by total capital employed:
The Company finances its operations through equity, borrowings and management of its workingcapital with a view to maintaining an appropriate mix between various sources of finance to minimizeliquidity risk. Taken as a whole, the Company's risk arising from financial instruments is limited asthere is no significant exposure to price and cash flow risk in respect of such instruments.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. Fair value of underlying financialassets are determined based on requirements of Regulation 66 of Non-Banking Finance Companiesand Notified Entities Regulations, 2008 and directives if any, issued by the Securities and ExchangeCommission of Pakistan. Fair value of debt instruments other than Government Securities, which areunlisted or listed but not traded regularly on stock exchange be valued at rates notified by MutualFunds Association of Pakistan. The fair value of financial assets traded in active market i.e. listedsecurities are based on the quoted market price at determined by stock exchange in accordance with itsregulations.
---------------Rupees---------------
As required under the NBFC Regulations, every leasing company not involved in deposit taking shallmaintain minimum equity requirement of Rs. 50 million at all times. The Company has maintained andcomplied with the minimum equity requirement during the current year.
Notes to the Financial StatementsFor the year ended December 31 , 2016
226
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-
Lo
ng te
rm fi
nanc
es a
nd lo
ans a
nd a
ccru
ed
int
eres
t the
reon
-
80,2
87,5
19
-
80
,287
,519
N
et in
vest
men
t in
finan
ce le
ases
12-
40
6,93
2,03
5
-
406,
932,
035
-
-
-
-
2,51
9,44
5
49
1,431
,671
-
49
3,95
1,116
-
-
-
-
Fina
ncia
l lia
bilit
ies n
ot m
easu
red
at fa
ir va
lue
Acc
rued
and
oth
er li
abili
ties
15-
-
4,
166,
310
4,
166,
310
-
-
-
-
Acc
rued
mar
k-up
on
borr
owin
gs16
-
-
959,
922
959,
922
-
-
-
-
Sh
ort t
erm
bor
row
ings
1710
4,83
8,93
1
-
10
4,83
8,93
1
-
-
-
-
Pr
ovisi
on fo
r com
pens
ated
abs
ence
s19
-
-
2,10
2,27
7
2,10
2,27
7
-
-
-
-
Lo
ng te
rm fi
nanc
es-
-
37
3,23
3
37
3,23
3
-
-
-
-
Liab
ilitie
s aga
inst
ass
ets s
ubjec
t to
finan
ce le
ase
20-
-
60
1,306
601,3
06
-
-
-
-
Long
term
dep
osits
12-
-
31
,314
,005
31,3
14,0
05
-
-
-
-
Def
erre
d lia
bilit
ies21
-
-
5,15
2,85
7
5,15
2,85
7
-
-
-
-
10
4,83
8,93
1
-
44
,669
,910
149,
508,
841
-
-
-
-
36.1
The
Fund
has
not
disc
lose
d th
e fa
ir va
lues
for t
hese
fina
ncial
inst
rum
ents
, bec
ause
their
car
ryin
g am
ount
s are
reas
onab
le ap
prox
imat
ion
of fa
ir va
lue.
36.2
Carr
ying
am
ount
Fair
valu
e
For
finan
cial
inst
rum
ents
that
are
reco
gniz
edat
fair
valu
eon
are
curr
ing
basis
,the
Com
pany
dete
rmin
esw
heth
ertra
nsfe
rsha
veoc
curr
edbe
twee
nLe
vels
inth
ehi
erar
chy
byre
-ass
essin
gca
tego
rizat
ion
(bas
edon
the
low
est
level
inpu
tth
atis
signi
fican
tto
the
fair
valu
em
easu
rem
ent
asa
who
le)at
the
end
ofea
chre
porti
ngpe
riod.
The
Com
pany
’spo
licy
isto
reco
gniz
etra
nsfe
rsin
toan
dtra
nsfe
rsou
tof
fair
valu
ehi
erar
chy
levels
asof
the
date
ofth
eev
ento
rch
ange
incir
cum
stan
ces
that
caus
ed th
e tra
nsfe
r. D
urin
g th
e ye
ar e
nded
Dec
embe
r 31,
201
6 th
ere
wer
e no
tran
sfer
s bet
wee
n Le
vel 1
, Lev
el 2
or L
evel
3 of
fair
valu
e m
easu
rem
ents
.
Notes to the Financial StatementsFor the year ended December 31 , 2016
227
37 SEGMENT INFORMATION
Finance Loans and Investment Others Totallease receivables
Segment revenue 23,066,962 9,464,198 1,790,051 3,093,906 37,415,117 Segment profit 27,540,356 5,854,666 1,790,051 3,093,906 38,278,979 Segment result 38,278,979
Unallocated cost
Finance cost 13,224,768 Administrative and operating expenses 38,111,121
51,335,889
Loss before tax (13,056,910) Taxation 325,312 Loss after tax (12,731,598)
Other informationSegment assets 406,932,035 78,926,446 - - 485,858,481 Unallocated assets 17,908,548 17,908,548 Total assets 503,767,029
Segment liabilities 223,733,484 - - - 223,733,484 Unallocated liabilities 123,077,978 123,077,978 Total liabilities 346,811,462
Net assets 156,955,567
Capital expenditure - - - 1,280,792 1,280,792
37.1 Revenue reported above represents revenue from external customers. There are no intersegment sales.
37.2 Revenue from finance lease includes income from finance lease operations and gain/loss on termination of lease. Revenue from loans and receivable includes mark-up income on loans to customers andemployees, and revenue from investments include gain on disposal of investments and dividend income.
2016
-------------------------------------------------- (Rupees) -------------------------------------------
A segment is a distinguishable component of the Company that is engaged in business activities fromwhich the Company earns revenues and incur expenses and its results are regularly reviewed by theCompany's chief operating decision maker to make decisions about resources to be allocated to thesegment and assess its performance. Further, discrete financial information is available for each segment.
The Company's reportable segments under IFRS 8 are therefore finance lease, loans and receivables, andinvestments. Other operations, which are not deemed by the management to be sufficiently significant to disclose as separate items are reported under Others.
All assets and liabilities are allocated to reportable segments other than assets and liabilities not directlyrelated to the particular segment.
Notes to the Financial StatementsFor the year ended December 31 , 2016
228
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
Finance Loans and Investment Others Totallease receivables
Segment revenue 21,408,834 6,290,685 - 189,601 27,889,120 Segment profit 27,770,559 5,903,952 - 189,601 33,864,112 Segment result 33,864,112
Unallocated cost
Finance cost 17,665,337 Administrative and operating expenses 38,111,121
55,776,458
Loss before tax (22,179,999) Taxation 3,794,318 Loss after tax (18,385,681)
Other informationSegment assets 443,242,617 98,112,105 4,283,091 - 545,637,813 Unallocated assets 21,604,059 21,604,059 Total assets 567,241,872
Segment liabilities 245,985,781 - - - 245,985,781 Unallocated liabilities 147,883,038 147,883,038 Total liabilities 393,868,819
Net assets 173,373,053
Capital expenditure - - - 728,186 728,186
38 COMPARATIVES
December 31, 2015 NoteAs previously reported
AdjustmentAs currently reported
Balance sheetASSETS (Current assets)
7 1,630,488 (1,073,936) 556,552 December 31, 2015 Note As previously
reportedAdjustment As currently
reportedBalance sheet
Total shareholders' equity 174,446,989 (1,073,936) 173,373,053
Profit and loss account
27 37,480,351 1,073,936 38,554,287
30 (0.40) (0.17) (0.57)
39 NUMBER OF EMPLOYEES
40 DATE OF AUTHORISATION FOR ISSUE
These financial statements were authorized for issue on 27 February, 2017 by the Board of Directors of theCompany.
The number of employees as on the year end were 38 and average number of employees during the year were 40
The management has identified that it has not recorded provision against other receivables is prior year. The
Company, therefore, has retrospectively rectified the error by restating the amount for Deposits, prepayments and
other receivables and accumulated loss as reported in the balance sheet as at December 31, 2015 and Administrative
expenses as reported in the profit and loss account for the year ended December 31, 2015.
The effects of restatement has been limited to line items as presented below.
---------------Rupees---------------
Loss per share - basic and diluted
Administrative and general
2015
-------------------------------------------------- (Rupees) -------------------------------------------
---------------Rupees---------------
Deposits, prepayments and other receivables
Notes to the Financial StatementsFor the year ended December 31 , 2016
229
Notes to the Financial StatementsFor the year ended December 31 , 2016
SME LEASING LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016
Finance Loans and Investment Others Totallease receivables
Segment revenue 21,408,834 6,290,685 - 189,601 27,889,120 Segment profit 27,770,559 5,903,952 - 189,601 33,864,112 Segment result 33,864,112
Unallocated cost
Finance cost 17,665,337 Administrative and operating expenses 38,111,121
55,776,458
Loss before tax (22,179,999) Taxation 3,794,318 Loss after tax (18,385,681)
Other informationSegment assets 443,242,617 98,112,105 4,283,091 - 545,637,813 Unallocated assets 21,604,059 21,604,059 Total assets 567,241,872
Segment liabilities 245,985,781 - - - 245,985,781 Unallocated liabilities 147,883,038 147,883,038 Total liabilities 393,868,819
Net assets 173,373,053
Capital expenditure - - - 728,186 728,186
38 COMPARATIVES
December 31, 2015 NoteAs previously reported
AdjustmentAs currently reported
Balance sheetASSETS (Current assets)
7 1,630,488 (1,073,936) 556,552 December 31, 2015 Note As previously
reportedAdjustment As currently
reportedBalance sheet
Total shareholders' equity 174,446,989 (1,073,936) 173,373,053
Profit and loss account
27 37,480,351 1,073,936 38,554,287
30 (0.40) (0.17) (0.57)
39 NUMBER OF EMPLOYEES
40 DATE OF AUTHORISATION FOR ISSUE
These financial statements were authorized for issue on 27 February, 2017 by the Board of Directors of theCompany.
The number of employees as on the year end were 38 and average number of employees during the year were 40
The management has identified that it has not recorded provision against other receivables is prior year. The
Company, therefore, has retrospectively rectified the error by restating the amount for Deposits, prepayments and
other receivables and accumulated loss as reported in the balance sheet as at December 31, 2015 and Administrative
expenses as reported in the profit and loss account for the year ended December 31, 2015.
The effects of restatement has been limited to line items as presented below.
---------------Rupees---------------
Loss per share - basic and diluted
Administrative and general
2015
-------------------------------------------------- (Rupees) -------------------------------------------
---------------Rupees---------------
Deposits, prepayments and other receivables
Mir Javed HashmatChief Executive Officer
Bilal MustafaDirector
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231
BRANCH NETWORK
This page is intentionally left blank
233
56-F, Nazim-ud-Din Road,F-6/1, Blue Area,
Islamabad.Ph.# (051) 9217000, Fax.# (051)9217001
UAN: 111 11 00 11Website: www.smebank.org
HEAD OFFICE
SME Bank LtdLahore Main Branch84-B-1, Gulberg - IIIGhalib MarketLAHORE. PH # (042) 35772130, 35772015Fax # (042) 35772135-36UAN # (042) 111-11-00-11
SME Bank LtdAlamgir Building Ground Floor17-Edwards Road(Mouj Darya Road)LAHORE CITY.PH # (042) 37220663, 37221008, 37046217-9Fax (042) 37220663
SME Bank Ltd923 Block-B, Maulana Shaukat Ali Road,Faisal Town,LAHORE.PH # (042) 35218601-5,Fax # (042) 35218603
SME Bank Ltd56-F, Nazim-ud-Din Road,F-6/1, Blue Area,ISLAMABAD. PH # (051) 9219260, 9213478, 9213743Fax # (051) 9213742UAN # (051) 111-11-00-11
SME Bank LtdState Life Building, Ground Floor, 34-The Mall, PESHAWAR PH # (091) 5262780, 5285939, 5262779Fax # (091) 285177UAN (091) 111-11-00-11
SME Bank Ltd26-27-J,Trust Plaza, G.T. Road,GUJRANWALA. PH # (055) 9220767, 9200443Fax # (055) 9200243UAN # (055) 111-11-00-11
BRANCH NETWORK
234
SME Bank LtdJunaid Plaza, Iqbal Road,Near Committee Chowk,RAWALPINDI.PH # (051) 5553902, 5553922
SME Bank LtdKarachi Main BranchB/9-B/3, Near Post Office, S.I.T.EKARACHI.Ph # 32587144-6Fax # (021) 32587144-46UAN # (021) 111-11-00-11
SME Bank LtdFederal B-Area BranchS 4 & S 5, Latif TerracePlot # St-4-D, Block 20,FEDERAL B-AREA KARACHIPH # (021) 36800771-3Fax # (021) 36366947UAN # (021) 111-11-00-11
SME Bank LtdPlot # LS-4, Sector 12,Orangi TownKARACHI.PH # (021) 36653424-5Fax # (021) 36653425
SME Bank LtdP-341-B, Peoples Colony No.1,Satyana Road, FAISALABAD. PH # (041) 9220481-4,Fax # (041) 9220483UAN # (041) 111-11-00-11
SME Bank LtdGround Floor, Al-Amin Building, Opp. SCCI Paris Road, SIALKOT. PH # (052) 4266055, 9250566-7Fax # (052) 4265041UAN # (052) 111-11-00-11
SME Bank LtdPlot# 1-6/28 (404)M.A. Jinnah Road, QUETTA.PH # (081) 2836816Fax # (081) 2836817
235
SME Bank Limited56-F, Nazim-ud-Din Road,F-6/1, Blue Area,ISLAMABADPh.# (051) 9217000
SME Bank Limited17-E Edwards Road,LAHOREPH.#(042) 37312078, 37355358
SME Bank LimitedAwan Huts, Lala Rukh ColonyMansehra RoadABBOTTABADPH.#(0992) 9310159
SME Bank Limited801-802, 8th Floor, Park Avenue24-A, Block PECHS, Shahrah-e-Faisal KARACHIPH.#(0213) 4538041-4533886
SME Bank LimitedB # 104, Akhuwat Nagar, Airport RoadSUKKURPH.#(071) 5804556-7
RECOVERY OFFICES
236
KARACHI801-802, 8TH Floor, Park Avenue
24-A, Block PECHShahrah-e-Faisal
KARACHI (EAST).PH#(021) 34382310, 34382311
LAHOREIst Floor, Alamgir Building
17 - Edward (Syed Mouj Darya) Road LAHORE
PH # (042) 37232736
KARACHI801-802, 8TH Floor
Park Avenue24-A, Block PECH
Shahrah-e-FaisalKARACHI (EAST).PH#(021) 34383100
(A Wholly owned subsidiary)
HEAD OFFICEOffice # 304, 3rd Floor
Business ArcadeShahrah-e-Faisal
KARACHIPH # (021) 34322128-9Fax # (021) 34322082
TREASURY OFFICE
AUDIT OFFICES
SME LEASING LTD.
237
FORM OF PROXY
I/We __________________________________ of_________________________________ being
a member of SME BANK LIMITED, hereby appoint ___________________________________
or failing him____________________________________ of ____________________________
as my/our proxy, to vote for me/us and on my/our behalf at the 15th Annual General Meeting of the
Bank to be held on March 28, 2017 at 4:00 pm and at any adjournment thereof.
As witness my/our hand the _____________ day of ______________________ signed by the said
______________________________ in the presence of ________________________________.
Revenue Stamps:
Signature: _________________________
Name: ____________________________
Designation: _______________________
Address: __________________________
__________________________
Witness:
Signature: _______________________
Name: _______________________
Signature: _______________________
Name: _______________________
Notes:
1. A proxy must be a member of the Bank. However, an association (whether body corporate or not) being a member of the Bank may appoint as its proxy one of its officers though not a member of the Bank. 2. Proxy form, in order to be valid, must be duly signed and deposited at registered office of the Bank not less than 48 hours before the time of holding the meeting.
238
AFFIX CORRECT POSTAGE
The Company Secretary
SME Bank Ltd.56-F, Nazim-ud-Din Road,F-6/1, Blue Area, Islamabad.